How lenders decide whether to give you credit

 


✅ Understanding Credit Ratings & Credit Files

What Is a Credit Rating?

  • It’s a score based on your financial history that lenders use to decide if they should lend to you.
  • The higher your score, the more likely you are to get credit at a better rate.
  • Different lenders have different scoring systems, so being rejected by one doesn’t mean you’ll be rejected by all.

How Is Your Credit Rating Decided?

  • Credit scoring systems assign points based on information you provide and what’s in your credit report.
  • Lenders also consider your income, employment, debts, and previous payment history.

🗂 What Credit Reference Agencies (CRAs) Know About You

There are three main credit reference agencies in the UK:

  1. Experian
  2. Equifax
  3. TransUnion

They hold information on:

  • Your address history and Electoral Roll registration.
  • Court records like CCJs, bankruptcies, IVAs, or Trust Deeds.
  • Your payment history on loans, credit cards, etc.
  • Any repossessions of homes or other properties.
  • People you’re financially linked to (e.g. joint accounts).
  • Any fraud alerts or CIFAS markers.
  • Previous credit searches (applications you’ve made).

Data is usually kept for 6 years.


🧾 How to Access and Check Your Credit File

You are legally entitled to a free statutory credit report from each agency.

  • Visit:
    • Experian
    • Equifax
    • TransUnion (via Credit Karma)

📍 Always check your file before applying for credit.

If anything is wrong or out of date:

  • Write to the CRA to correct it.
  • You can also add a “notice of correction” to explain missed payments or financial hardship.

🛑 If You’re Refused Credit

What You Can Do:

  1. Ask why you were refused — the lender must tell you and which CRA they used.
  2. Don’t apply to lots of lenders at once — each application leaves a mark on your file.
  3. Use a guarantor — someone who agrees to repay if you can’t.
  4. Try a credit union — they’re often more flexible than banks.
  5. Look into other funding options like:
    • Government support
    • Charities
    • Budgeting tools
    • Debt help organisations

⚠️ Credit, Fraud, and CIFAS

If you’ve been the victim of fraud, a CIFAS marker may appear on your credit file:

  • It won’t automatically stop you getting credit, but lenders will ask for more ID checks.
  • CIFAS must notify you if there’s a warning on your file.

🛡 Payment Protection Insurance (PPI)

If you’re considering Payment Protection Insurance:

  • It covers repayments if you’re sick or lose your job.
  • Not suitable for everyone (e.g. self-employed or pre-existing conditions).
  • You don’t have to buy it with your loan. Compare providers.

📋 Credit Application Checklist

Before applying for credit, ask:

About you:

  • Can I afford the repayments?
  • Will my situation change (e.g. job loss, new baby)?
  • What’s the best repayment method?

About the credit:

  • What’s the total cost?
  • What’s the APR?
  • Are there extra fees (setup, early repayment)?
  • Will the interest change?
  • Do I need to secure the loan on my home?
  • Can I take the agreement home to review?


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