| Credit Scoring and Credit Rating in the UK
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Many companies use a credit scoring (or credit rating) system when trying
to determine if you are eligible to apply for things like loans, credit cards and mortgages, or services such as mobile phone contracts.
Credit scoring is also becoming more popular amongst other companies to assess suitable clients, for example many estate agents now credit check prospective tenants before offering them a tenancy agreement.
Your credit rating data is held by a CRA (Credit Reference Agency). This data
is accessed by lenders who wish to assess your suitability for credit.
The information held on file includes both the good and bad factors of your financial past, including late and missed payments, county court judgments (CCJs), bankruptcies, employment information, bad debts, whether you are a tenant or a homeowner (able to provide security) and whether or not you are on the electoral roll. Lenders then examine this information to establish the likelihood of you being able to stick to a potential credit agreement and determine whether you are subsequently eligible for their services.
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Bad Credit
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Contrary to popular belief, there is no 'credit blacklist' in operation. The CRAs provide the facts to lenders, who then score you according to their own criteria, usually a 'points' system or similar formula. If you are refused credit they are under no legal obligation to explain why.
The criteria is individual to each company so just because you are declined by one company, that doesn't mean that you will be declined by another - for example you may not be able to get a personal loan, but you may be able to get a mobile phone contract - as customers with bad credit may be considered less of a risk if taking out a monthly phone contract than, for example, a large unsecured personal loan.
If you think information held about you is wrong then you can obtain a copy of your file from the CRA. You must pay a £2 charge for this information. Your file will be logged as 'in dispute' until the matter is resolved and you must supply evidence to confirm that the data held is incorrect - if the CRA refuses to accept your claim then you can still get them to place a 'notice of correction' with the file, in certain circumstances, to state why you believe the data is wrong.
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| Loans for People with a Poor Credit History |
Loans for people with a poor credit history tend to be charged at a higher rate because of the risk involved to the lender. It is more difficult to get a loan and the terms are not as good as they would be for regular lenders. But that doesn't mean that there aren't some good deals out there. It is advisable to shop around and choose the one that is right for you - it could be beneficial if you are trying to consolidate your debts and, if you keep up the regular repayments, it may even improve your credit rating.
There are also credit cards designed specifically for people with a poor credit history. Before applying for more debt however, it is wise to get any existing debts under control, the Citizens Advice Bureau can help you work out a plan for getting your finances back on track - by working out your budget and setting your priorities. They can also advise you on using debt management plans, individual voluntary arrangements (IVAs), consolidation loans and negotiating with debtors. It is important to remember that there is always a way out of a bad credit situation, by breaking it down into manageable tasks and repayments - there are a lot of people out there in similar circumstances, especially with the looming credit crunch and it is advisable to think carefully before taking on any new commitments which may become unmanageable or jeopardise your credit history.
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