Check My Credit Rating

Credit is used by many adults in the UK as part of their overall money management strategy. We rely on mortgages to buy our homes for example, and shopping and online spending is often done using store cards and credit cards. We may also take out personal loans to help us pay for a car, a holiday, home improvements, or other high expenditure items.

At the end of 2006 mortgage debt in the UK was a record £1.08 trillion, and consumer credit - including cards, loans, overdrafts and other non-mortgage debt totaled a further £213 billion; according to Bank of England figures.

If you or I approach a lender with a credit application then the lender will want to obtain financial information about you and your projected ability to make repayments on any debt. Banks, building societies and other lenders rely on consumer data that is supplied to them by companies that are known as credit reference agencies. The information that they hold on people is used to give them a credit rating.

There are three major credit reference agencies in the UK; these are Experian, Equifax and Callcredit. Lenders provide both positive and negative information to these companies concerning the credit histories of their customers - information that is then used by other lenders when making decisions to lend. This means that in order to decide whether someone like me is a good credit risk they will use information drawn from these pooled sources This is a record of my personal spending habits and is known as my credit report - it is this that helps me to check my credit rating.

Credit reference agencies are not there to make decisions about who to lend to, nor are they informed whether applications are refused or accepted. The information that these agencies hold is designed to enable rather than prevent people from getting credit. Credit reports are regarded as a vital tool in the prevention of fraudulent financial claims.

Historically lenders were unhappy about sharing information held on their customers with credit reference agencies - they may have thought that this would affect their competitive advantage. In recent years however, lending levels and mounting bad debts has led all major lenders to agree that more information about their customers should be shared with the credit reference agencies. It is anticipated that this will lead to better lending decisions and a reduction in the number of consumers who taken on excessive levels of debt.

As a rule your credit report is updated each time that you apply for credit. This leaves a sort of 'credit footprint' which informs other lenders that you have applied for credit.

Credit reference agencies provide lenders with a limited amount of factual information rather than opinions. Whether your application for credit is accepted or rejected is determined solely by the lender and their respective lending policies. One lender may refuse your credit application while another may reject it, and both of these decisions will be based on the same information. In the final analysis how much risk they are willing to sustain is down to the individual lender.

Credit reference agencies do not make decisions about lending and are not informed on the outcomes of credit applications. This means that if I ask to see my credit report or check my credit rating the agency will not be able to ell me why my application may have been refused. It is not within the credit agency's remit to comment on the lender's actions; all they can do is to provide you with a copy of the information in your credit report.

Lenders are under no legal obligation to tell you why they have not granted your credit application; however they should provide the main reason or reasons for refusal if you ask. They should also provide you with details for the credit reference agency they used and what part that information played in their decision to refuse your application. One of the reasons that I would check my credit rating is because lenders sometimes use a credit scoring system and should tell you whether they have used this and explain how the scoring works. When you apply for credit you can request that your application is dealt with using personal rather than computerised credit scoring.

The Myths

It is a myth that there is a 'credit blacklist' of people and properties. Before a lender makes a decision about an individual's trustworthiness they take into account the existing information on your credit report and then apply their own lending policies. However if your credit report contains negative data such as bankruptcy, previous insolvency or a poor history of repayments, it may count against you when the lender decides whether or not to loan you the money.

It will not count against you if family members have poor credit records providing you have no direct financial link with them. However, if you have a joint account, or hold a joint mortgage with your partner, then your credit history will be affected by theirs. If you decide to move then your credit rating and report will not be affected by the credit history of the previous tenants.

Your employment details, council tax payments or previous criminal record are not included in your credit report which means they do not affect your credit rating. What is more, if I check my credit rating I will find that the report does not contain personal information such as medical history, political attitude, sexuality, race or religion. On the other hand there will be no data on your savings and investments in the report. Lenders will only look at your credit history when considering your application for a loan; not how good a saver you might be or what other assets you may have - although individual lenders might ask about your assets they will not be on your credit report.

While your credit report contains publicly available information; your credit account information can only be accessed by organisations that have permission. Credit account information is only available to lenders who subscribe to the strictly regulated CAIS or Credit Account Information Sharing.

These lenders then combine the information you have given on your application form with the data from your credit report. The lender can see from the application form your personal data; your name and address, date of birth, employment, housing and marital status, along with your reason for requesting a loan or other form of credit. This will then be used to give you a credit score which indicates your credit rating - which is why I like to regularly check my credit rating.

Your credit score is based on a number of different factors and may include all of the following information:

- Whether you are on the electoral roll, if you aren't it is almost impossible to get credit.
- Your age (lenders tend to prefer older borrowers - perhaps as an indication of greater financial wisdom)
- Your income - the higher the better
- Length of time in your current job (lenders prefer people in long term employment)
- Your residential status (homeowners are preferred)
- Marital status - married people are preferred
- Length of time at your present address - the longer, the better
- Whether you have a home telephone

These factors are weighted differently according to the lender. This difference may explain why some lenders are happy to extend credit to you while others will reject your application for a mortgage, personal loan or credit card.

It is estimated however, that eight out of ten personal loan providers along with a growing number of those who issue credit cards now make use of what is known as 'risk based pricing.' This introduces shades of grey inot the lending process rather than the black and white acceptance or rejection.

In simple terms, risk based pricing means that your personal financial circumstances will dictate the interest rate that you are offered. Preferred applicants (those with a good credit score) are offered the lowest rates while customers who are deemed less creditworthy are charged higher rates of interest. It is, however, incumbent on lenders who use risk based pricing to offer their typical annual percentage rate or APR to at least two thirds of successful applicants.

Most lenders will undertake a credit search on you if you are applying for credit; they do this by contacting a credit reference agency to request details of what is in your credit file. Every search of your credit report is kept by credit agencies for a year this is known as a footprint - footprints inform a lender when your credit report is accessed and by whom. This is why your credit report will contain a record of all the searches that have taken place over the last year.

A credit search may also be carried out for reasons that may not have anything to do with processing a credit application. These searches might be undertaken to provide you with a credit quotation or to confirm your identity - each time this is done it leaves a footprint on your credit report.

Alarm bells may be triggered when a potential lender sees that there have been a large number of credit applications on your file in a short space of time. These searches could indicate that you are finding it hard to keep up your existing credit commitments; or it could mean that someone is attempting to commit fraud by using your name. These things mean that when there is an abnormal amount of activity on your credit report, the lender should investigate this further.

If you are shopping around to find the best credit deal then this could result in a high number of searches on your credit report. Lenders can avoid alerting other lenders unnecessarily being alerted by carrying out a 'quotation search' which leaves a soft footprint as apposed to a 'credit application search' which leaves a hard footprint.

This sort of information makes me want to check my credit rating and report to ensure that my shopping around for a quotation has left a soft rather than a hard footprint on my report. I don't really want to create a hard footprint until I have decided on the best deal for me and made a formal credit application which will leave a hard footprint. Whatever the circumstances, lenders should always inform you before they carry out a credit check or before they verify your identity by looking at your credit report.

If you hold a joint account with someone else, for example your husband or wife, then your financial relationship will be recorded. Should your financial partner have debts elsewhere then this also will be in the report and could affect your rating. Until recently lenders could also include in their risk assessment the fact that two people shared the same surname, lived at the same address, or had some form of shared financial relationship such as a joint application for finance or a mortgage in both their names.

Things have changed and nowadays lenders can only access and take into account information about other people at your address if there is a financial link. Most couples who live together, whether or not they are married, usually have some financial link, although these associations are much less common among parents and their adult children. Thus a parent's rating cannot be affected by the poor credit rating of an adult child unless there is a financial link - nor will the rating of adult children be affected by their parents' credit history without a financial association.

If I wanted to check my credit rating then I would ask for a copy of my credit report. The report will show my financial data along with the names of anyone with whom I might have a financial association. This linked information will remain on the report and could adversely affect my credit rating until the financial association comes to an end. Once credit agencies have confirmation that there are no longer any financial links between myself and another person, they will break the association.

Should you enter into a financial relationship with someone then your record will be associated with that person. You should consider the person's attitude towards debt before linking your finances with someone else. It is a good idea to check your credit rating and to make enquiries about the person with whom you may be considering a joint application with.

You have a right to see your credit report, which is a copy of the information about you that is held by a credit reference agency under the Consumer Credit Act 1974 and Section 7 of the Data Protection Act 1998. More than a million adults every year ask for a copy of their credit reports, and check their credit rating.

Personally I would want to check my credit rating and view the report to make sure that data held on me was correct if I felt that it might hold incorrect information or if a recent credit application had been refused. Everyone should check their credit rating and request a copy of their credit report particularly if their marital circumstances have changed or they have moved house.

You can ask that a copy of your credit report be posted to you. The fee of £2 is set by law and should expect your report to arrive within seven working days. Credit reference agencies will also allow you to access your credit report on the internet, but the fee for this is higher than the postal fee of £2. You can also choose to pay an annual fee, or take out a monthly subscription which will grant you online access to credit-monitoring services that will enable you to keep a close eye on your credit report.

There are numerous places where you can get get a copy of your credit report, although most will cost you a fee. However, there are a few companies which offer you a free trial, so that you can check your credit rating completely for free:

Free credit report for UK - www.creditexpert.co.uk

Free credit report for USA - www.privacymatters.com

If you are struggling to be accepted for a mobile phone contract because of your bad credit history, please visit my other lense for a list of companies who can help.

No Credit Check Mobile Phones