Martin Lewis: Don’t worry too much about your credit rating, it’s unrealistic!

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When you apply for a loan, each lender will individually assess you using their individual scorecard.

You do not have a universal credit rating in the UK.

In the UK, there is no single, all-encompassing number tied to your identity that dictates to a lender – be it a bank, credit card company, mobile phone company or anyone else – whether they should accept you as a customer.

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You have a credit file that you are legally entitled to review. It contains key public and private information about you, such as whether you are on the voter list, any financial connections with others, decisions or orders of district courts, and any loan products that you have owned for at least six years. plus if you paid on time.

It is important to check these files for errors at least once a year, or before any major application, as even small problems can derail applications (I was once able to figure out the reason a woman kept getting rejected mortgages during the program. to the problem with the wrong address of the contract mobile phone, which she no longer used).

There are three credit reference agencies and all have files available on the Internet. Check them all. There are many ways to access them – I focused on easy and free ways. For Experian, go through mine www.creditclub.com, for Equifax www.clearscore.com, and for TransUnion www.creditkarma.co.uk

Wait, I have a credit rating, I know what that is!

This is the usual answer. A few years ago, commercial credit agencies focused on making money by providing information to lenders. Consumers’ legal right to see their information was a pain to them. Then, some bright spark realized that the public was an untapped source of income, and began to look for goods that could be sold or sold to them.

An important one was the credit rating (using the residual knowledge of people that it is real in other countries). That’s why they now give you a seemingly important number – for Equifax it’s 700, TransUnion 710, and Experian 999 – that seems to shape your financial life.

The first sign that there is no one universal credit rating is that it is different for every firm!

Each lender evaluates you differentlyWhen you apply for a loan, each lender will individually assess you using their individual scorecard. He will plug in all the details he has about you – from your loan file, application form, and any past transactions you have had with him – to determine if you will be a profitable client.

Notice I’m talking about profit, not risk. While risk is an important factor – someone with a history of defaults is likely disadvantageous to most lenders – this is not the only factor. A bank may offer a loss-leading credit card to cross-sell a mortgage, so your actual valuation can influence how desirable you are to do so. The secrecy nature of credit scoring makes it difficult to obtain reliable information.

The credit score you received is just a rough model.

The number you are given is really just a credit reference agency’s indicator of how a typical lender might view you based on your credit history. Useful, but not gospel (more like guesswork) because: Each lender has its own scoring system; Credit history is only a fraction of what lenders look for. In fact, just as important to lenders as your creditworthiness is the availability check. For that, the most important piece of information you need to know is how much you make — something that credit reporting agencies don’t know and therefore don’t count towards in your rating.

Take someone with excellent credit who makes £ 50,000 and is applying for a £ 5,000 loan. Most likely they will be accepted. If they lose their jobs and pay off the loan on time, their credit history will not change for the worse, but without income they will most likely be denied.

Don’t worry about small movements, worry about big

I am often contacted on social media by people concerned that their “credit rating” has dropped by about 20 points – often when they did something they thought could not be negative, such as closing an unused credit card …

However, some lenders will find this to be a positive point as you have fewer loans available. The rest are negative, as long-standing accounts testify to a good reputation for loyalty. And other factors like total credit, debt, and how they compare to your income can also affect how they see it.

So, for example, if you close your card or open a new bank account and see your credit score drop 20 or 30 points, don’t worry. It’s just a vague idea of ​​whether you are a good or bad risk for a hypothetical average lender.

However, large swings should be taken seriously. This is a decent sign that your details have changed, suggesting that you have committed a real credit sin, such as missing a payment, exceeding a limit, or failing to meet obligations. If you haven’t, you need to find out why and check your credit file – it could be a mistake or identity scam.

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