Your Credit Rating when you apply for a loan

Whenever you try to apply for a loan or try to borrow money from a financial institution, those lenders will look into your credit rating. This applies across the board from mortgages to cell phone contracts or credit cards. Lenders are being very picky about lending and who they are lending to. How do you improve your credit rating?

Let’s look at some examples:

George has a mortgage with Northern Rock and is trying to shift the loan to another financial institution that offers a more favourable rate. He has paid every installment with Northern Rock on time since he took out the loan for a period of four years, and because of the transfer from the one bank to the other and a coincidental change of address a single payment was defaulted on, on that particular month. Four months later he settled the complete outstanding amount of over 7000 pounds. Now because of that single default he is unable to get a loan from other money lenders.

The answer to this conundrum is that unfortunately a single default on payment stays on your record for six months even if you have been an exemplary payer up until that time. You can however appeal to each of the three reference agencies and explain why you defaulted on your payment as well as submitting a ‘notice of correction’. The three agencies in the UK that deal with credit rating are Experian, Equifax, and Callcredit.

Credit ratings, an interesting question:

Rachel is debt free, has a completely up to date mortgage, has never defaulted on a credit card or council tax payment and cannot understand why her credit rating isn’t higher. The answer is that she simply does not have a credit rating. The three credit agencies give you a score and any lender will look at your score based on the information given by typically only one agency. There are several aspects that you will not find on your report, for example local council tax. It is important for you to present all three reports when applying for credit.

Now we are really getting down to the nitty-gritty with Tom’s question:

Why is it that one is so quickly reported and given a bad credit rating when one defaults, yet when one clears a debt or pulls oneself out of the problem situation no action is taken and one has to make the effort oneself to inform the agencies that the debt has been cleared? The answer given is that this should not be the case. Lenders are legally obliged to keep abreast of the current information supplied by credit agencies.

Demand an update on your credit rating if you are up to date with payments:

Information should be updated every month and if you check your credit rating and it as not been updated, you can demand that the credit agency contact the lender for you and that the matter be placed under question until there is resolution.

These are just some of the many questions that are asked about credit rating and how to keep yours healthy. It serves you well to keep up with payments as best you can so that when it comes to buying that dream house where you can bring up your little ones, and that car you will need to chauffeur them back and forth to school, not to mention heading south for the beach holiday every year, keep those agencies happy!