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Personal Finance 101 - Credit Checks
Credit cards, personal loans, mortgages and other forms of
personal credit are an everyday part of financial life for all
UK consumers. Looking at the figures for UK personal debt shows
that Britain appears to be addicted to borrowing money and still
continues obtaining more from the financial institutions. By the
end of 2005 the UK personal debt levels stood at a record
£1,148, with 83% of this debt consisting of secured mortgage
loans. Due to the nations reliance on credit of all forms, it is
extremely important to keep a close eye on your own personal
financial history and keep up to date with the official credit
check reports which can help prevent fraud, and make the
difference between acceptance at a favourable interest rate, or
outright rejection just when the money is needed the most.
In the UK there are two main credit reference agencies which
hold a wide range of financial information detailing a person's
continually evolving financial history, these are Experian ( http://www.experian.co.uk/ )
and Equifax ( http://www.equifax.co.uk/ ).
By obtaining a copy of your report from each of these sources,
(as they may contain different information), you can not only
check the accuracy of the information stored and look for any
potentially fraudulent entries, but you can also request that
any incorrect information is amended to prevent possible future
credit problems.
Each lender will weigh the information contained in a person's
credit file differently. However there are universal
contributing factors which include:
- Electoral Roll information for a person's currently registered
address. - Defaults on any financial repayment contracts, such
as loans, mortgages, etc. - Employment history for mortgage,
credit cards, loans, hire purchase and finance agreements. - Any
County Court Judgments. - The complete amount owed and the
number of credit facilities used. - The number of new credit
facilities that have been applied for (both successful and
unsuccessful applications). - The type of credit used. - Salary
details given on the application form.
Lending organisations combine the data obtained through a credit
report, along with information acquired from an application
form, to produce a credit score. This score represents a measure
of an applicant's likelihood to repay debts and to make any
repayments on time.
If an applicant's score falls below the lenders acceptable risk
threshold, or they don't fit an ideal customer profile, then the
application may be completely rejected. It is also possible that
a low score may result in acceptance, but at a more expensive
interest rate than might usually be offered.
Some credit card providers, such as the Asda supermarket chain's
finance services, now provide applicants with a copy of their
credit reports with all applications, however, to obtain the
best deal it is vitally important that borrowers do some
shopping around. When shopping around for credit however, try to
obtain as much information as possible prior to making a formal
application for credit. Whenever any application for credit is
made, a footprint is left on the credit record showing that a
search has been made. Credit companies see lots of footprints as
an indicator that the applicant may be in severe financial
difficulties or even that some form of fraud may be evident.
Using one of the various online financial comparison websites,
such as Moneynet ( http://www.money
net.co.uk/loans/index.shtml ), enables you to see what is on
offer, and what general market rates are available, before any
financial commitment or full credit search is required.
Even people who are not looking to obtain additional credit may
find a credit report useful for peace of mind, and to ensure
that their credit details are not being used for fraudulent
applications, or as part of the growing disturbing phenomenon
that is identity theft.
Disclaimer:
All information contained in this article, is for general
information purposes only and should not be construed as advice
under the Financial Services Act 1986.
You are strongly advised to take appropriate professional and
legal advice before entering into any binding contracts.
Useful resources:
Moneynet loan comparisons ( http://www.moneynet.co.uk/ )
Experian credit reference agency ( http://www.experian.co.uk/ )
Equifax credit reference agency ( http://www.equifax.co.uk/ )
About the author:
Richard lives in Edinburgh, occasionally writing for the
personal finance blog Cashzilla, and listens
to music no one else likes.
R.Green
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