When
you apply for any credit product –be it
a mortgage, credit card or personal loan - the
potential lender will first check out your credit
worthiness with a process known as credit scoring,
before reaching any decision on approving the
loan. Many will be aware of the existence of
credit ratings, thanks in part to television
adverts offering to disclose your ‘score’,
and it is easy to get the idea from these adverts
that each person has a universal credit rating
which is shared among lenders: this is simply
not the case.
There are three main credit reference agencies
in Britain, and each use different methods for
‘scoring’ the credit worthiness
of individuals – this means that on a
given day, it is possible to have three different
credit ratings. These scores are consulted by
lenders as part of the decision making process
for appraising credit worthiness, and are designed
to help predict your likely behaviour, based
on your previous history of credit use, as well
as other factors. However, these credit scores
are only part of the decision making process,
as each lender has a profile of a target ‘ideal’
customer that fits their particular business
plan, and use credit scores as only part of
their decision making process when considering
approving a loan.
Major high street lenders such a Santander will
advertise loans
with a ‘typical’ rate of APR interest.
The ‘typical’ rate will apply to
those applicants that most closely match the
desired borrower profile; the ‘good bets’
as assessed according to the lenders criteria.
If you have a less than ideal credit score,
you may still be offered a loan; it will, however,
be unlikely to be at the headline rate of interest
listed on the advert.
Before looking to take out a loan, or other
credit products, it is well worth first finding
out what is recorded in the credit files that
have been compiled about you. The simplest way
to do this is to sign up for one of the free
30 day trials of credit monitoring services
offered by the major credit reference agencies
in the aforementioned adverts. This will involve
setting up a direct debit to pay for the year’s
contract, so it is essential that you remember
the most important step – and that is
to cancel the contract before the free trial
period expires. This way, you will be able to
check that no erroneous data is ruining your
score – absolutely free of charge.
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