Making Sense Of Money

What Is Bad Credit

What Is Bad CreditCredit history or credit report is a record of an individual’s past borrowing and repaying, including information about late payments and bankruptcy.

Whenever an application for credit is made, be it from a bank, building society or other financial institution, a store card or credit card company, the information is forwarded to a credit reference agency. The credit agency checks the name, address and other identifying information of the applicant with the information already held in its files. It’s therefore very important that any information held is accurate as it will affect the applicants ability to obtain credit facilities

This information is used by lenders such as credit card companies to determine an individual’s credit rating and hence the risk to the lender – they will check how debts have been managed in the past, make sure payments have been made on time, check for defaults and CCJs and any other warning signs. Lenders like to see a credit history as having previous or current lines of credit that’s been well managed gives them confidence in the borrower, hence having no credit history at all may also affect the ability to borrow.

Repairing Bad Credit History

Nobody just gets a good credit rating – you have to earn it! A bad credit rating can be caused by numerous reasons, typically:

  • Consistent late payment of commitments
  • Defaults or County Court Judgement’s (CCJs) being registered against the person
  • Other details such as incorrect address, not being listed on the electoral roll etc

How you go about repairing a bad rating depends on just how bad it is and what has caused it. Before you start it is always a good idea to actually look at your own report, check the accuracy of the information being held and know exactly what you’re dealing with.

You’ll need to take some, or all of the 10 steps to start to repair your history:

  1. Pay Off Debt When You Can
  2. Close Any Old Or Unused Accounts
  3. Show Some Stability
  4. Avoid Too Many Applications
  5. Get On The Electoral Register
  6. Time Your Credit Applications Wisely
  7. Keep Up Your Repayments
  8. Avoid Joint Finances
  9. Build Your Own Credit History
  10. Perform Occasional Checkups On Your Credit File

The Credit Check

Every time you apply for any form of credit the potential lender will perform a check on you through one of the credit agencies in the UK. This will not just be when you apply for a loan or credit card but store cards, mobile phone contracts etc.  The information on your application form will be checked to prove you are who you say you are and your age and address is accurate. It may also be used to check on your credit history to see how you’ve handled your credit agreements in the past.

You should check information held by all of the three main credit reference agencies, Experian, Equifax and Callcredit plc as some information may be different.

Equifax plc: http://www.equifax.co.uk/

Experian Ltd: http://www.experian.co.uk/

Callcredit Ltd: http://www.callcredit.co.uk/

A credit check is therefore used to assess the creditworthiness of the applicant by reviewing the credit repayment history.

The potential lender checks the borrower’s ability and history to adhere to their financial responsibilities.

A credit check gives assurance to the creditor that the lender will repay his loan regularly.

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