Credit ratings - truth or myth?
Do they really exist and what they mean to you when you apply for a loan.
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Credit ratings - truth or myth?
Depsite what we are led to believe there isn't a special list detailing everyone's individual credit rating or score.
It's true that when you apply for a loan, mortgage, credit card or bank account the lender will score you, but this scoring system varies from provider to provider, product to product.
You'll be scored on the lender's perfect customer wish list. Just because one turns you down, doesn't mean they all will.
Being accepted as a customer doesn't mean you will get the deal you applied for. Most adverts use the word "typical" when talking about the interest rates they offer. If after reviewing your application the provider feels you are not "typical" they may still offer you a product - just not the one you applied for.
When a lender assesses your credit application, it will gather certain information about you and your current finances and then use that to decide if they want to deal with you or not.
Usually you'll be asked to complete an application form which includes your address, salary, whether you are a homeowner and the reason for your application. The lender will also check to see if you've been a customer before. If you have taken a loan out previously and then defaulted on it, the lender of that particular loan may refuse to lend to you again.
Finally, they will contact a credit reference agency. There are a number of agencies including Experian and Equifax. They compile information gathered from sources such as the electoral roll and court records. They'll use this to give you a credit rating. It's possible to have a different rating from each agency.
The lender has the final say. Even if you have a good credit rating your application could still be refused. The most likely reason is that lending to you will not make them any money!
In some cases having no credit history is worse than having a low credit rating. For instance, if you're applying for a loan or a savings account with a high interest rate but you've never had a credit card, overdraft or loan before, the lender will have little evidence about how you manage your financial affairs and will not be keen to lend to you.
Beware of companies offering to improve your credit rating for a fee. There is nothing they can do that you can't. This is Money has some great tips on improving your credit rating.
Source: Time For Money