Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk

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Your Credit Rating and Getting a Loan

What is it?

Many people aren't aware of what their credit rating is or how it affects them. It can be quite a complicated thing to get your head around, and so even people who know about how company's gauge credit rating and how your credit history is detailed and recorded, may find themselves in a sea of complexities when facing a credit file... and that's understandably so. This article is going to give a quick, dummies guide about how it all works and how it will affect any loan application you may make. Although bear in mind that some lenders don't operate a credit rating system (although they still might take a gander at your report).
From the outset; it all begins with a credit reference agency. These agencies are the boys and girls who have made it their responsibility to hold data relating to your credit activities. They archive it, keep it up to date and provide the information to lenders upon request. Loan lenders aid this process by reporting to the agencies regarding how you are managing your finance, loans, credit cards, and outstanding credit so that a comprehensive (although not always exhaustive) log can be built up of your credit "movements". 

What Affects it?

Missing payments, going over your limit, being in credit, applying for new credit, getting turned down for credit are all reported to one or more of the agencies (Usually Experian and Equifax). If you pay off a debt, it is reported, if you fall behind by a couple of payments it is noted, and so on and so forth. How the lenders use this information to gauge your "lendibility" varies from lender to lender, but generally they'll take into consideration your credit limits, how regular your payments are and how often you've applied for credit recently. For example, if you've applied with a load of lenders but have been turned down, then this might seem a bit "desperate" from a lender's point of view, so it can be beneficial to apply to a lender where you think you're likely to be accepted. In this regard it's useful to check your credit report before applying for credit. It can also be useful to apply through a broker who may be able to place you better depending on your circumstances.
Other factors outside of your credit past, such as whether you're on the electoral roll at your current address (useful for making sure you are, who you say you are), whether you have a landline (makes you appear more stable) and how long you've been in your current employment or home for also affect your potential rating (for lenders using a rating system). Missing payments can attach a negative view against your credit report, but additionally, be in in possession of too much outstanding credit can also provoke caution amongst money lenders. A hot tip is to close any accounts you have open which you aren't using. For example, having an empty credit card sitting about, gives you the ability to "max it out" at any time, which would create more debt for you and perhaps make you less likely to pay back a new lender, so closing it off may make once less concern for a new lender. This is the same whether you're looking for a secured or unsecured loan.
There are hundreds of factors which may affect a loan application, so it's always useful to take these things into consideration before applying and to make your application count. Please be sure to consult professional financial advice before committing to further lending, this text is purely an overview from our perspective and may not be applicable in your current situation.

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