Improving your credit rating

Contents
1. How lenders decide whom to lend to 2. Credit scoring 2.1. Can you ask them to reconsider? 2.2. Applying to different lenders 3. Credit reference agencies 3.1. Your right to check your credit file 3.2. Getting incorrect information removed 4. Credit refused due to identity theft

If you’ve been refused a loan or credit, or you’re worried that you might be, you can check the information that’s kept about you. If it’s wrong, you can ask for it to be corrected. If the information is correct and you’re worried about your debts, you can get free help.

When you apply for a loan or credit, lenders want to know that you’re going to be able to repay any money they lend you. The two key ways they usually assess this are:

• Work out your ‘credit score’ by asking you a series of questions
• Check your ‘credit history’ with a credit reference agency

To work out your credit score, lenders ask you for details of:

• Your income
• Your expenses
• Major things you own – like your home
• Any other loans you’ve got

They give points for each of your answers. If you don't score enough points, they may:

• Refuse to give you a loan
• Offer to lend you a smaller amount
• Charge you a higher rate of interest

A lender won’t usually tell you why they’ve refused you a loan, but they may give you a general idea if you ask them.

You can ask them to reconsider if:

• They made their decision just using a computerised credit scoring system
• You’ve got information that might make them change their mind

Lenders score customers in different ways, so you can try again with another lender. But bear in mind that each application will be noted on your ‘credit file’ kept by credit reference agencies. Too many refused applications will have a negative effect on your credit history.

Credit reference agencies hold information (called a ‘credit history’) on most adults in the UK. This information helps lenders assess the risk of lending to particular people, and reduces the risk of fraud.

The main agencies are Experian , Equifax and Callcredit .

To put together your credit history, the credit reference agencies get information from several sources, including:

• The electoral register
• County Court judgements
• Bankruptcy orders
• Other lenders – to check that you’ve kept up to date with other loan repayments
• Details of house repossessions

You can’t stop lenders checking your credit file, but the law says you can see what’s on it. You’ll have to pay, but credit reference agencies can’t charge more than £2 for this. You may also be able to see your file online, but this may cost more.

The Data Protection Act 1998 gives you the right to have information on your credit file corrected or removed if it’s wrong (but not just because you don’t like it). The credit reference agencies will tell you how to do this.

Some commercial ‘credit repair’ companies offer to remove information from your file to ‘clean’ it. The FSA warns against using them – it’s best to get in touch with the credit reference agencies yourself.

You could be refused a loan because your credit file shows that you haven’t kept up the repayments on a loan you didn’t even know about. This can happen if someone’s stolen your identity and applied for loans or credit cards in your name.