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Anyone in the UK who makes an application for finance will almost certainly be subjected to a credit check, where the prospective lender will check your history when it comes to dealing with debt and make a decision based on the information they find.
The process for checking an applicant’s credit worthiness varies and whether the company you are applying for money from offers quick short term loans or is a mortgage provider, they will all access the same data to a certain extent and then interpret it using their own in-house systems and rules.
Credit scores
Credit scoring is the system used by lenders to determine the level of risk you represent before they agree to lend you any money. When you apply for credit you will complete an application form which will ask you for a range of personal information, and based on the answers that you give and the data that they gather about your past credit history, they will allocate points for each specific fact.
All these points are then added together to give you an overall credit score and the higher the score, the more credit worthy you are considered to be. Lenders set a target score for their credit scoring and if you fall below the figure they have set then they may decide not to lend you any money or they may want to charge you a higher rate of interest in view of the fact that you are considered to be a more risky proposition.
All lenders use different systems so you might fail in your application with one lender but be accepted by another. They won’t tell you what your score is even you ask them but they will tell you to check your credit file to see if you can spot any details on there that look wrong or explain why your credit score is below their accepted threshold.
There are several credit reference agencies in the UK who hold financial information about you and they will all hold the same basic key data such as whether your name is on the Electoral Roll, whether you have any court judgments for non-payment, how you are managing your existing borrowings such as credit cards and loans, and if you have had any serious issues in the past such as a house repossession.
This information is held on your file for a period of six years although there are certain situations where the record may be kept for longer, such as a bankruptcy where the court has ordered that a restriction should be held for longer than this.
Every time you apply for finance this is recorded on your credit file so if you are rejected a couple of times you should not keep applying as this will make the situation worse. Get a copy of your credit file and try to see what information about you is preventing you from getting credit.
It makes sense to know how credit works so that you can make informed decisions when it comes to borrowing money.
Peter Davis is a professional number cruncher. After years in finance, he enjoys turning his experience into writing about making smart money choices.
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