Personal Finance 101 - Credit Checks
Author: R.Green

Credit cards, personal loans, mortgages and other forms of
personal credit are an everyday part of financial life for all
UK consumers. Looking at the figures for UK personal debt shows
that Britain appears to be addicted to borrowing money and still
continues obtaining more from the financial institutions. By the
end of 2005 the UK personal debt levels stood at a record
£1,148, with 83% of this debt consisting of secured mortgage
loans. Due to the nations reliance on credit of all forms, it
is extremely important to keep a close eye on your own personal
financial history and keep up to date with the official credit
check reports which can help prevent fraud, and make the
difference between acceptance at a favourable interest rate, or
outright rejection just when the money is needed the most.

In the UK there are two main credit reference agencies which
hold a wide range of financial information detailing a person's
continually evolving financial history, these are Experian (
http://www.experian.co.uk/ ) and Equifax (
http://www.equifax.co.uk/ ). By obtaining a copy of your report
from each of these sources, (as they may contain different
information), you can not only check the accuracy of the
information stored and look for any potentially fraudulent
entries, but you can also request that any incorrect
information is amended to prevent possible future credit
problems.

Each lender will weigh the information contained in a person's
credit file differently. However there are universal
contributing factors which include:

- Electoral Roll information for a person's currently
registered address.
- Defaults on any financial repayment contracts, such as loans,
mortgages, etc.
- Employment history for mortgage, credit cards, loans, hire
purchase and finance agreements.
- Any County Court Judgments.
- The complete amount owed and the number of credit facilities
used.
- The number of new credit facilities that have been applied
for (both successful and unsuccessful applications).
- The type of credit used.
- Salary details given on the application form.

Lending organisations combine the data obtained through a
credit report, along with information acquired from an
application form, to produce a credit score. This score
represents a measure of an applicant's likelihood to repay
debts and to make any repayments on time.

If an applicant's score falls below the lenders acceptable risk
threshold, or they don't fit an ideal customer profile, then the
application may be completely rejected. It is also possible that
a low score may result in acceptance, but at a more expensive
interest rate than might usually be offered.

Some credit card providers, such as the Asda supermarket
chain's finance services, now provide applicants with a copy of
their credit reports with all applications, however, to obtain
the best deal it is vitally important that borrowers do some
shopping around. When shopping around for credit however, try
to obtain as much information as possible prior to making a
formal application for credit. Whenever any application for
credit is made, a footprint is left on the credit record
showing that a search has been made. Credit companies see lots
of footprints as an indicator that the applicant may be in
severe financial difficulties or even that some form of fraud
may be evident. Using one of the various online financial
comparison websites, such as Moneynet (
http://www.moneynet.co.uk/loans/index.shtml ), enables you to
see what is on offer, and what general market rates are
available, before any financial commitment or full credit
search is required.

Even people who are not looking to obtain additional credit may
find a credit report useful for peace of mind, and to ensure
that their credit details are not being used for fraudulent
applications, or as part of the growing disturbing phenomenon
that is identity theft.

Disclaimer:

All information contained in this article, is for general
information purposes only and should not be construed as advice
under the Financial Services Act 1986.

You are strongly advised to take appropriate professional and
legal advice before entering into any binding contracts.

Useful resources:

Moneynet loan comparisons ( http://www.moneynet.co.uk/ )
Experian credit reference agency ( http://www.experian.co.uk/ )

Equifax credit reference agency ( http://www.equifax.co.uk/ )


About The Author: Richard lives in Edinburgh, occasionally
writing for the personal finance blog Cashzilla (
http://cashzilla.blogspot.com/ ), and listens to music no one
else likes.