Prospective lenders keep files on customers’ and small business spending habits and behaviour in order make a judgement on whether to allow credit. This is done via a credit scoring system. The higher the score, the better the deal one may get on loans, and therefore save money. This can be crucial to small businesses. According to the Sunday Times Guide to Personal Finance edited by Diana Wright (HarperCollins, 2004) the lenders use a credit report company to make the decision on whether to allow credit. The three main ones are:
- Experian
- Equifax
- CallCredit
Data Kept by Credit Report Companies
Essential details on potential credit customers are kept by credit agencies. These include:
- Address of applicant including those within the household
- Age
- Court records pertaining to debt
- Fraud (whether committed or a victim)
- Account data
Factors That Enhance Credit Rating
- Clean court records pertaining to debt
- Presence on electoral roll (shows stability of the applicant)
- Long-term homeowner of present address
- Long-term customer with particular bank(s)
- Long-term employment
- Few credit applications
- An older person is seen as lower risk
- A landline contact number (as opposed to a mobile) makes a security check easier
Factors That Have Detrimental Effect upon Credit Report Rating
- Presence of CCJs (county court judgments) IVAs (individual voluntary arrangements) and/or bankruptcies
- Recently or frequently moving house
- Living in rented accommodation
- Frequency of credit searches
- High number of store cards and/or credit accounts taken out
- Self-employed or unemployed
- Younger people are viewed as higher risk
- Default on bank payments
Conversely, those who adopt the habit of paying the balance in full every month can have double-sided effect as it shows stability of the applicant but yields little potential profit for the bank. Therefore, one who tends to pay the minimum balance and accrue bank charges without defaulting is seen as a more desirable customer. It often happens that one agency may refuse credit, whereas another may grant it. It is often a good idea to try more than one.
Credit repair companies have sprung up, purporting to clean up credit scores for the customer, but one must adopt wariness when approaching one, for they may charge hefty fees for a service the customer could obtain for free.
Information That Credit Rating Companies do not Have
The following is not taken into account when processing a credit application:
- Savings accounts
- Wages
- Criminal records
- Religion
- Medical history
- (In some cases) student loans
How to Get Free & Instant Credit Check Online
One may check their credit score for nothing by applying online to Experian or Equifax. One may sign up for a thirty-day free trial with a monthly charge thereafter. Changes in the credit report may be sent via an email alert to the applicant as a credit monitoring service. However, once the credit report has been viewed, the applicant may cancel the subscription straightaway without accruing a fee. The cancellation may be done online or via a free phone number.
Credit Repair Guide
If anything appears amiss on the credit report, the applicant may write to the agency. Unfortunately, requests for amendments can sometimes be refused, in which case, the applicant may file a “Notice of Correction” which should be short and to the point. This may refer to the reckless spending habits of an ex partner or financial associate who has blackened the credit rating of the applicant but whose relationship has since been severed.
One may also perform a credit clean up in the long term by spacing out applications for credit and addressing the issues that damage credit scoring as mentioned above. After six years, court records relating to debt are cleared. However, refusal of credit from one source will not necessarily mean that credit will be refused by all. But one must always bear in mind that banks look for ways of making profit from potential customers as opposed to good behaviour when deciding whether to grant credit.
Rachel Shirley - I have written and illustrated several art instruction books entitled Oil Paintings from your Garden and Oil Paintings from the Landscape ...
