Credit rating for consumers (that’s you and me) is based on a complex web of information.
Some of the information included within it, is public information and some relates to you only and is private. When you apply for credit you often give the lender permission to conduct a credit rating check, which includes allowing them to record with the credit agencies that you have applied for a loan or other credit arrangement with them.
There is a lot of mystery around exactly what goes into a credit report, which is why it is generally a very good idea to actually get free access to your free credit report. However, for the sake of setting you at ease and busting some general myths about what is on there and what banks know, we thought we would outline some of the common misconceptions and set them straight
The Credit Black List
Being blacklisted is not possible, because there is no black list. Credit ratings serve to effectively grade everyone on their ability to handle credit. People with high scores can manage credit better than those with lower scores. Or so the theory goes. Although those with very low scores will find it more difficult to get credit, there is no such list that’s that anyone on it shouldn’t be lent to
Credit Agencies Tell Banks Who to Lend to
Credit agencies do not tell banks who to lend to, if they did, you wouldn’t need to provide all of that information on the application form. When any lender evaluates you for credit, they take into account many things. The information you enter onto the form, including your income and liabilities (rent, dependent children etc). The amount of available credit you already have, as well as how much of that you have already used. For instance you might have a credit card with a limit of £2000, but only have £500 of debt on it. The lenders request your credit rating and consider this financial management history as well. Some banks will lean more on the information provided by the credit agencies, some much less. The information taken into account by each lender is called their Lending Criteria. If you meet of exceed it, you’ll be offered credit. If you don’t, you wont. Simple.
Credit Ratings Can Be Fixed
Correct in the sense that you can access them, check for errors and request errors to be corrected. However, it is not possible to artificially improve or fake your way to a better score. In the UK we have a system of positive credit rating. In short this means that lack of information or dubious information will negatively impact your credit score, not improve it. In positive credit scoring you have to build up your credit score with strong financial relationships, good payment history and no black spots. Failures, defaults and anything ambiguous will lead to you losing points and reducing your score. Some countries like Australia still use negative credit scoring, but are looking to change, as positive credit scoring is a more reliable way of assessing risk.
Applications for Credit Reduce My Credit Rating
Not true, but they do have an impact on lending decisions. When you apply for loan or other credit arrangement, a record of this is entered onto your credit report. Credit Agencies do not know if you have been approved or turned down, but if you have multiple applications within a short period of time, the assumption is that you are potentially being turned down, and are therefore desperate. Being refused credit, and being desperate, don’t scream that you are a safe bet. So be careful in what you apply for and what you apply for. As with any borrowing, you should only borrow what you need and can afford to pay back. Get lots of quotes and apply for ones you think you can be approved at the best APR.
Boom. That just happened.