You might not know it, but every time you take out any kind of
loan or credit or pay something back, it gets counted on your
credit rating. Who keeps a record on you will vary according to
where you live, but the big three credit reference agencies are
Experian, Equifax and Trans Union. They will provide your credit
rating to any company that is thinking of lending you money.
If, like most people, you have borrowed money (credit card,
mortgage, car) then you will have a 'credit file'. And you
really should know what's on it. For two good reasons. Firstly,
banks, retailers and other credit providers rely on your credit
file when deciding whether to lend you money or not. Secondly
it's your reputation that's at stake. If you never see your
credit file, you'll never know if it's correct until it's too
late and then your plans and your future could suffer a serious
setback.
What is Included in Your Credit Rating
All the debts you currently have are included in your credit
rating. There is a history of all the debts you've had in the
past ten years or so, and special emphasis is put on anything
that has gone wrong. Defaulting (never paying) on any debt will
ruin your credit rating completely. Borrowing a lot before you
start paying anything back will make you look like a very bad
risk, and so will going all the way up to (or even over) your
limit on a credit card.
It is also worth considering that the credit reports of anyone
you live with may be linked to your report, and could reflect
badly on you - your wife or husband's credit rating is tied to
yours quite closely.
How Your Credit Rating is Worked Out
The most common method of coming up with your rating is called
'FICO', named after the Fair Isaac Corporation, who invented it.
Your current credit status is prioritised, in this order:
whether you've paid past debts, how much debt you currently
have, your credit history, the types of debt you use, and how
many times your rating has been checked recently. Things that
happened more recently are given more weight than things that
happened a long time ago.
Why Your Credit Rating is Important
Any time you get turned down for a credit card or any other
loan, the chances are that it was because of your credit rating.
Companies giving out small loans are far more likely to rely
completely on this rating than to bother checking your income,
and a worse rating will mean that you are offered a higher
interest rate.
Your rating is important when you get car loans and mortgages
too. You don't want to find a house you love only to get turned
down for the mortgage thanks to your habit of paying your credit
card bills late.
How to Check Your Credit Rating
Credit reference agencies can't hold your information on file
without telling you what it is they have. If you write them a
letter and pay a very small fee, they have to send you the full
credit report that they have about you.
You can then check over your credit rating, and send a letter
back to the agency telling them about anything that you think
isn't right. You might find that a screw-up has made you look
bad when it wasn't your fault. They will include anything you
send in your file.
In some countries, you may find that you can sign up to get
credit reports regularly for a small fee, or even for free! Make
sure to check your local laws.
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