In the not-so-distant past, credit was by word of mouth. Villagers would occasionally lend money or goods to each other, and shop owners would sell items on credit. And, as you would expect, word would soon get around about who was, and who was not, reliable in paying it back.
Naturally, banks and shop owners were generally more willing to take the word of those with reputations for being reliable. Equally, they would think twice about lending to those with a reputation for being late or not paying back their debts at all.
The same principle still apply, to how the credit system works today.
These days, your reputation is represented by a score (usually out of 700 or 1000). This is is give by one of three credit reference agencies. The score is automatically calculated based on your credit file, which contains a history of all your borrowing on credit cards, loans, mortgages and even mobile phone contracts. It also shows how you have handled repayments in the past.
Lenders use this credit file, and sometimes the score itself, to decide whether or not to approve your application. They often also use it to decide what rate of interest to charge you.
Who holds my credit report?
Confusingly, you are likely to have not just one credit score or file, but several.
This is because there are several credit referencing agencies. Each of them holds slightly different information, and have different ways that they measure and calculate your overall credit score. In the UK, the three main credit reference agencies are Experian, TransUnion and Equifax.
Most lenders will use one, or a combination of these agencies, to make a decision.
How to check your credit report
Checking your credit score is relatively easy. All three credit referencing agencies provide websites available to the general public. On them, you can register and view the information they hold about you, free of charge.
Why it’s important to check
Most lenders, as well as insurance and mobile phone providers, will either manually or automatically check your credit file when they make a decision.
When they carry out a check, often this itself can be recorded on your file (called a ‘footprint’). This can happen regardless of whether your application was successful or not.
Because of that, it’s a good idea to make sure that everything is accurate before you apply. It’s worth checking to make sure that there is nothing in there that is likely to trip you up, or cause your application to be turned down.
Protecting yourself against fraud
Another good reason to check regularly is to protect yourself from fraud. Sadly, fraud is also on the rise. Each year, there are thousands of cases of criminals applying for credit cards or mobile phone contracts falsely using the names, addresses, and other details stolen from others. Your credit report will show all credit which has been taken out in your name, so it’s a good way to spot if something’s not right.
What is considered a good score?
There’s no solid rule on this one, as different lenders will be looking for different things. Many also will set different criteria for which customers they wish to lend to.
As a rule of thumb though:
Experian’s credit scores’ range from range from 0-999.
- Fair: 721-880
- Good: 881-960
- Excellent: 961-999
TransUnion’s scores range from 0-710.
- Fair: 566-603
- Good: 604-627
- Excellent: 628-710
Equifax scores range from 0-700.
- Fair: 380-419
- Good: 420-465
- Excellent: 466-700
How we use credit scores
Forces Finance is part of London Mutual Credit Union. At London Mutual, we use a manual underwriting process. That means that your loan application will always be carefully considered by a member of our team. There will never be a situation where ‘computer says no’.
As part of that process, we will check your credit file with one or more of the three credit providers. This is the best way for us to verify your identity, and to see who else you owe money to. It also shows us if you have had any problems with repayments or things like CCJs in the past.
Your credit file is just one of a whole range of factors we consider, including your income and affordability checks. Because of this, there will never be a situation where we approve or decline your application based just on the headline number in your credit score alone.