The truth behind credit ratings

Article Written By: BrookeWebb

If you have ever wondered what your personal credit rating is, then you might be a little shocked to find out that you do not have one. There is no universal credit rating system in the UK, and when we talk about credit ratings, we are talking about the unique scores given to your credit reference file by a lender upon application for a loan.

The credit score given to you by a company is not passed on to other firms, and only affects what products they will allow you to have, and at what rate. If your credit score is high with a particular credit card company, for instance, you can expect a better APR and a higher credit limit.

There are three firms in the UK, called Equifax, Experian, and Callcredit, that keep records of the debt history of every person in Britain. Lenders use these companies to provide them with information about a potential borrower when processing applications.

While lenders have access to information about your past financial dealings, there is not one universal ratings scheme that is adhered to by all lenders. However, if one lender sees you as a bad risk, then the chances are that others will too.

Credit ratings are not all about the ability of a person to pay back debts swiftly. In fact, the opposite is true. Credit ratings are all about how much profit the lender can potentially make from the borrower. A prudent person may well have a worse credit rating than someone who is always struggling to make repayments.

Bear in mind that the ideal customer for a credit card company is somebody who never pays off their card in full, and remains in perpetual debt. If you have always paid off your card in full every month, you may find yourself being turned down by some card companies, because they do not think that they can turn a profit from lending to you.

While it is true that missing payments can harm your credit record, seemingly prudent steps such as paying your card in full every month or switching debt to cards with interest free introductory periods on a regular basis can be just as harmful.

The ideal customer for a credit card company is somebody who earns enough money to make their minimum payments each month, but is otherwise fairly irresponsible with money. However, if you frequently miss payments, or worse, default on loans, then lenders will probably see you as too much of a risk to their profit margins.

lenders will look upon you as a risk that they cannot afford to take, and you will most likely be refused credit.

About the Author

Kristan Brangers has lately been looking into services to help with debt management and has taken bankruptcy advice from Baines and Ernst.

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