When you apply for a loan or credit, the lender will look into your credit history to establish, based on the level of risk, whether they want to lend money to you and at what rate.
It’s important that you understand how this decision is made, especially since it is possible for you to influence your credit history over time, allowing you to improve your chances of getting credit.
We take you through the sorts of things that lenders will be taking into account when they make that all-important decision.
Your credit score
This is a system used by lenders to assess whether you are a good or bad credit risk, and to what extent either way.
Your credit score acts as an explanation of your borrowing, showing a personal history of the credit you’ve had and the repayments you’ve made.
The information that you give on an application form will tell the lender a lot about you, and each answer on the application is given points. These points are added together to give a credit score and the higher the score, the better your credit history.
Each lender sets their own thresholds for lending or not lending credit. Some may charge more interest if the score is low. Lenders even have different criteria for acceptance or decline, sometimes accepting different circumstances and criteria over others.
This is why it is beneficial to use a broker who has a large panel of lenders and, as in the case with My Car Credit, has a unique and flexible lending criteria and our own in-house lending company.
Your credit history
There are three major credit reference agencies – Experian, Equifax and CallCredit – and lenders will check your credit worthiness from information held on your credit reference file.
When you fill in your credit application form and sign the terms and conditions, you are giving permission for the lender to contact the credit reference agency and check the information supplied in the application form.
All the credit reference agencies keep information about you and a lender can consult one or more of them when making a decision as to whether to give credit or not.
Lenders will want to see that an applicant has kept up repayments on past and current agreements. They will also be interested in what other financial commitments you already have and if payments have been made on time.
What finance information is held about me?
Credit Reference Agencies usually hold information on your credit file for six years, although in some circumstances (such as details of bankruptcy) it can be longer. The information will be compiled from the following:
The Electoral Roll
Shows the addresses you’ve been registered to vote at and the dates you were registered there.
Including court judgements, bankruptcies and, in England, Wales and Northern Ireland, IVAs, Debt Relief Orders and Administration Orders.
Shows how well you have managed existing accounts such as your bank accounts and other borrowing.
Shows lenders who you have agreements with, including things like your utilities, services and mortgage, and whether payments have been made on time.
Information from the Council of Mortgage Lenders to show if homes have been repossessed.
Shows details of any other people you are financially connected to. This will include people you’ve jointly applied for credit with or have a joint account with.
Shows details of companies and organisations that have looked at information on file in the last 12 months.
Shows any previous addresses you’ve lived at.
If you’ve been a victim of fraud, this will also show on your credit file as a form of protection against further fraudulent attempts.
Improving your credit score
The great thing about your credit score is that you can improve it by rectifying any inaccuracies on your credit file and by working to improve your credit worthiness.
It is best to tackle any issues that might be affecting your credit status before making any new applications as it can be trickier to address them once the process has started.
My Car Credit have partnered with Credit Angels to assist you with everything to do with your credit score and managing your finances like a pro.
You can check your credit score for free here and their website has tons of helpful advice and tips on how to improve your credit score.