14
Aug
Credit Ratings
Posted by , under Banks
Grant Rowe asked:
How banks decide who to lend to:
A bank will basically use three different types of information when deciding whether to give you a loan, credit card or mortgage. Firstly, it will look at the information on your application form. As well as items such as your age, income and marital status, it will look at how often you’ve moved jobs or home. This will give it an idea of how ’stable’ you are financially.
Secondly, it will look at how you’ve acted when it’s dealt with you in the past, so how you’ve operated your current account and whether you’ve repaid loans on time. Obviously, if you’ve never dealt with the company before this stage will be skipped.
The last of the three steps is to look at your credit report. There are three agencies in the UK who keep this sort of information. They are Experian, Equifax and Callcredit. Your credit report contains various bits of information about your credit history with other lenders, which we look at in more detail below.
Having looked at each of these three sources of information, a lender will then assess how you measure up on various points and build up its own credit score for you. If your credit score is greater than a certain number, your application will usually be approved. If it’s not, then you’ll either be rejected or offer a smaller loan or one at a higher rate of interest.
Unfortunately, lenders don’t disclose how they score individuals. Each company will assign a different rating to various issues, depending on their experience with customers in the past, so this is why you might be rejected for credit by one lender but accepted by another. Although it’s a popular misconception, there is no such thing as a ‘credit blacklist’.
What’s on your credit report?
Credit reports contain many different types of information about you. For example they contain matters of public record such as whether you are on the Electoral Roll (a prerequisite for approval by most lenders).
Your credit report will also show whether you’ve had any County Court Judgments (CCJ) against you or whether you’ve been made bankrupt, are in an Individual Voluntary Arrangement (IVA) or a debt management programme. Usually these items are shown for the last six years only but it can be longer if you’ve been issued with a bankruptcy restriction order if the court believed you acted dishonestly or were to blame for your bankruptcy.
Any recent applications for credit you’ve made are also shown on your credit report. Usually this information is kept for twelve months but Callcredit keeps it for two years. Whether the application was accepted or not and the amount is not recorded but obviously a lender will able to see if you then went on to have a loan with the company concerned.
Several applications for credit in quick succession can affect your chances of getting further credit as a lender may assume you have been refused or are in danger of taking on too much debt. One way around this problem is to ask for quote for credit rather than making a formal application. This won’t appear on your credit report and you’ll need to make a formal application if you do then proceed to take out a loan. You can also ask for a quotation search rather than an application search to be made.
This will appear on your credit report but any lender will be able to see it wasn’t a formal application.
If you have any financial associations with another person a note of this will appear on your credit report. In this instance, a financial association means having, for example, a joint loan, bank account, credit card or mortgage. A financial association allows a lender to access the other person’s credit report when assessing whether you’re suitable to lend to.
Just because you’re married to or living with someone, their credit history won’t automatically be associated with yours. Additionally, any credit problems previous residents or tenants of your property have had won’t affect your ability to get credit.
Finally, any debt agreements you have or that have been settled within in the last six years will also be recorded on your credit report, together with a summary of your recent payment record where applicable. If you are in arrears or in default then this will be shown. Not all lenders supply information to all the credit report companies so it may be that not all your debts will appear. Some lenders only supply negative information so a record might only appear if you’ve been in arrears or default.
As well as debt agreements, mobile and pay TV payment information may appear on your credit report. Information relating to the payment on utility bills or council tax does not however. Rather perversely, a lack of credit in the past can mean it’s more difficult to get accepted for a loan. Lenders prefer to see a clean credit history rather than none at all.
Getting hold of your credit report
You can write to any of the three credit report agencies and get your credit report for
How banks decide who to lend to:
A bank will basically use three different types of information when deciding whether to give you a loan, credit card or mortgage. Firstly, it will look at the information on your application form. As well as items such as your age, income and marital status, it will look at how often you’ve moved jobs or home. This will give it an idea of how ’stable’ you are financially.
Secondly, it will look at how you’ve acted when it’s dealt with you in the past, so how you’ve operated your current account and whether you’ve repaid loans on time. Obviously, if you’ve never dealt with the company before this stage will be skipped.
The last of the three steps is to look at your credit report. There are three agencies in the UK who keep this sort of information. They are Experian, Equifax and Callcredit. Your credit report contains various bits of information about your credit history with other lenders, which we look at in more detail below.
Having looked at each of these three sources of information, a lender will then assess how you measure up on various points and build up its own credit score for you. If your credit score is greater than a certain number, your application will usually be approved. If it’s not, then you’ll either be rejected or offer a smaller loan or one at a higher rate of interest.
Unfortunately, lenders don’t disclose how they score individuals. Each company will assign a different rating to various issues, depending on their experience with customers in the past, so this is why you might be rejected for credit by one lender but accepted by another. Although it’s a popular misconception, there is no such thing as a ‘credit blacklist’.
What’s on your credit report?
Credit reports contain many different types of information about you. For example they contain matters of public record such as whether you are on the Electoral Roll (a prerequisite for approval by most lenders).
Your credit report will also show whether you’ve had any County Court Judgments (CCJ) against you or whether you’ve been made bankrupt, are in an Individual Voluntary Arrangement (IVA) or a debt management programme. Usually these items are shown for the last six years only but it can be longer if you’ve been issued with a bankruptcy restriction order if the court believed you acted dishonestly or were to blame for your bankruptcy.
Any recent applications for credit you’ve made are also shown on your credit report. Usually this information is kept for twelve months but Callcredit keeps it for two years. Whether the application was accepted or not and the amount is not recorded but obviously a lender will able to see if you then went on to have a loan with the company concerned.
Several applications for credit in quick succession can affect your chances of getting further credit as a lender may assume you have been refused or are in danger of taking on too much debt. One way around this problem is to ask for quote for credit rather than making a formal application. This won’t appear on your credit report and you’ll need to make a formal application if you do then proceed to take out a loan. You can also ask for a quotation search rather than an application search to be made.
This will appear on your credit report but any lender will be able to see it wasn’t a formal application.
If you have any financial associations with another person a note of this will appear on your credit report. In this instance, a financial association means having, for example, a joint loan, bank account, credit card or mortgage. A financial association allows a lender to access the other person’s credit report when assessing whether you’re suitable to lend to.
Just because you’re married to or living with someone, their credit history won’t automatically be associated with yours. Additionally, any credit problems previous residents or tenants of your property have had won’t affect your ability to get credit.
Finally, any debt agreements you have or that have been settled within in the last six years will also be recorded on your credit report, together with a summary of your recent payment record where applicable. If you are in arrears or in default then this will be shown. Not all lenders supply information to all the credit report companies so it may be that not all your debts will appear. Some lenders only supply negative information so a record might only appear if you’ve been in arrears or default.
As well as debt agreements, mobile and pay TV payment information may appear on your credit report. Information relating to the payment on utility bills or council tax does not however. Rather perversely, a lack of credit in the past can mean it’s more difficult to get accepted for a loan. Lenders prefer to see a clean credit history rather than none at all.
Getting hold of your credit report
You can write to any of the three credit report agencies and get your credit report for
26
Jul
Credit Score Rating Scale – What You Must Know
Posted by , under Law Academy
Mike Singh asked:
All of us at one point or another have to refer to our credit reports. It can be for credit for a new dress, a new car and even a new house. It can be for applying for a new job. It can be for renting a new apartment. Indeed, there are many situations that require your report with your rating and score outlined in it.
Of course, your report also includes personal information such as full name and address, employer’s name and address and information regarding bankruptcy filings, court suits, foreclosures and short sales and trends in bills payment, to name a few. Credit bureaus collect all this information so as to calculate your score and rating.
Now, you will be asking what the difference is between a credit score and a rating since they appear synonymous. Yes, there are differences but the aims are basically similar – provide an objective gauge for third parties regarding your ability to make payments on time.
Credit Scores
These scores are your Fair Isaacs Corporation (FICO) score. This corporation developed the system used by all three major credit bureaus in the United States: Equifax, TransUnion, and Experian to calculate scores.
Your scores are expressed in the hundreds such that the lower the figure, the higher the risk. If you have a score of 350, you are a high risk debtor while a score of 850 means that you are a very low risk.
Also, it must be noted that the three major credit bureaus use different sets of criteria with varying weights to determine score although the same set of report information is used. You will most often be issued three different credit scores! Still, the three credit scores are often approximate their figures so you basically fall within a specific category of low, medium and high credit risk.
The criteria used to determine credit score include credit payment history, time length of credit history, current debts, frequency of applications for new credit and credit type mix. Again, it must be emphasized that the credit bureaus will assign different weights to each criterion. However, it is safe to assume that previous credit performance and current level of indebtedness get the most weight at about 30 percent each while the types of credit available and the time credit has been in use gets 15 percent each and pursuit of new credit is at 5 percent.
Credit Rating
Aside from the scores, most countries also use rating using a scale of 0 to 9. There are two types of credit rating signified by the addition of the letter “I” for installment credit such as home or auto financing and “R” for revolving credit like credit card debt.
Unlike the credit scores where the three bureaus collect the information from many creditors, the rating scheme is such that each creditor will provide its own rating for you. Thus, you may have an R1 in Visa but an R5 in MasterCard because you neglected to pay the latter in favor of the former.
Indeed, you have to be aware of your credit score and rating because these numbers have a very real impact on your life.
Suzanne
All of us at one point or another have to refer to our credit reports. It can be for credit for a new dress, a new car and even a new house. It can be for applying for a new job. It can be for renting a new apartment. Indeed, there are many situations that require your report with your rating and score outlined in it.
Of course, your report also includes personal information such as full name and address, employer’s name and address and information regarding bankruptcy filings, court suits, foreclosures and short sales and trends in bills payment, to name a few. Credit bureaus collect all this information so as to calculate your score and rating.
Now, you will be asking what the difference is between a credit score and a rating since they appear synonymous. Yes, there are differences but the aims are basically similar – provide an objective gauge for third parties regarding your ability to make payments on time.
Credit Scores
These scores are your Fair Isaacs Corporation (FICO) score. This corporation developed the system used by all three major credit bureaus in the United States: Equifax, TransUnion, and Experian to calculate scores.
Your scores are expressed in the hundreds such that the lower the figure, the higher the risk. If you have a score of 350, you are a high risk debtor while a score of 850 means that you are a very low risk.
Also, it must be noted that the three major credit bureaus use different sets of criteria with varying weights to determine score although the same set of report information is used. You will most often be issued three different credit scores! Still, the three credit scores are often approximate their figures so you basically fall within a specific category of low, medium and high credit risk.
The criteria used to determine credit score include credit payment history, time length of credit history, current debts, frequency of applications for new credit and credit type mix. Again, it must be emphasized that the credit bureaus will assign different weights to each criterion. However, it is safe to assume that previous credit performance and current level of indebtedness get the most weight at about 30 percent each while the types of credit available and the time credit has been in use gets 15 percent each and pursuit of new credit is at 5 percent.
Credit Rating
Aside from the scores, most countries also use rating using a scale of 0 to 9. There are two types of credit rating signified by the addition of the letter “I” for installment credit such as home or auto financing and “R” for revolving credit like credit card debt.
Unlike the credit scores where the three bureaus collect the information from many creditors, the rating scheme is such that each creditor will provide its own rating for you. Thus, you may have an R1 in Visa but an R5 in MasterCard because you neglected to pay the latter in favor of the former.
Indeed, you have to be aware of your credit score and rating because these numbers have a very real impact on your life.
Suzanne