Ever needed to lend some money from the bank? Whether a bank decides to lend you some money or not quite often depends on your credit rating.
All money lenders will perform a credit check on your details in order to assess whether you will be a high or low risk customer to them.
What is a Credit History?
A person will start building up a credit history from the moment they start lending money. This could be a personal loan, a bank overdraft, a credit card, an interest free loan or a mortgage loan.
The data in your credit rating is kept for more or less 6 years. Your credit history records any late repayments that were made, any unpaid debts outstanding and whether repayments of debts are made when due or when overdue.
All the above aspects will affect whether a lender would like to offer you a loan and what interest rate the loan will be offered at.
How Credit Ratings Work?
Before a lender decides to offer you a loan they will run a credit check on your credit history. They will use the services of one of the two main credit reference agencies in the UK, Experian and Equifax.
Based on your current address and any previous addresses, they will check what debts you still have outstanding and whether any past repayments of debt where made late.
If you have a high amount of debt outstanding or your credit history shows a considerable amount of late repayments, lenders will classify you as a high risk customer.
This might not mean that they will not offer you a loan, but this might trigger them to charge a higher interest rate, to cover the increased risk, due to the uncertainty that the loan might not be repaid.
Dealing with a Bad Credit Rating
The first step to take is to check the credit rating obtained. Are all the outstanding debts and late repayments correct or has a mistake slipped into the details? Does the rating include details about a related person with whom you have no financial connection with?
If all the details are correct, the next step is to discuss your credit rating with the lender. Other favourable circumstances might be present that might change the lenders opinion. But if all else fails, the only way out is either accepting a higher interest rate or delaying the loan request for a few years until your credit rating has improved.