What Is A Credit Rating?

When people apply for loans, credit cards, store cards or mortgages) they are scored according to factors in their application and their credit history. This effectively makes up their credit rating and determines whether lenders think they are a good risk.

The credit history looks at areas such as:

- Whether people have recently applied for credit

- How long they have had credit

- What type of credit they have had (such as different types of loans, credit cards or a mortgage)

- How much money they owe in total

- What their payment history is.

Lenders are particularly concerned with whether people have paid the specified repayments on time. Although one or two late payments may not unduly affect a person's credit rating, regular late payments will raise question marks for lenders.

Looking Into Your Financial History

Lenders are also concerned about other aspects of people's financial history. For example, lenders will want to know:

- Whether people have had any County Court Judgements (CCJs) against them

- Whether they have ever been made bankrupt

- Whether they have ever defaulted on a loan or credit card

- Whether they are in arrears on existing loans or credit

- How many credit applications they have made recently

- Whether they have been turned down for credit in the past

Much of this information is held in reports compiled by credit reference agencies. Equifax and Experian are the largest and best known credit reference agencies in the UK. People can find out what information is held about them by paying a small fee and requesting a copy of their credit report.

Other criteria that affect approval for credit are on lenders' individual application forms. These might include whether people own or rent their homes and whether people are employed (full-time or part-time), self-employed or unemployed. Lenders also look into existing salary and outstanding credit.

How To Get Credit With A Poor Rating

Although having a poor credit rating can make it difficult to get credit, this does not mean it is impossible. Options for getting credit include:

- Loans which are secured on the value of the property owned by the applicant

- A higher interest credit card, with an interest rate that reduces once the holder shows a good payment history

- Prepaid credit card, which works like a mobile phone top up card

Some people have a poor credit rating even when they have no CCJs or arrears on their credit report. This might apply to self-employed people (such as taxi drivers, market traders, hairdressers and other small business people). These people have similar options for getting credit. And they don't have to live on the streets, either. There are self-certification mortgages to enable self-employed people to buy houses.