Credit — many of us take it for granted until a problem crops up. Without credit, we would be unable to buy a home, borrow money, or use credit cards. Here’s a look at how credit works in the UK, to better help you manage your credit. Most UK lenders and credit card providers use their own methods of credit scoring to determine your credit risk. Lenders are not obligated to tell you what your score is, or how they determine it. They use information from your credit or loan application and the information from your credit record, which they obtain from one of the credit reference bureaus. Your credit record contains information from public records and current and past credit accounts. This includes how much credit you have used, what types of accounts you have had in the past and have now, and whether or not you have paid your bills on time.
Tips to establish good credit
A little planning goes a long way when trying to establish a good credit record.
Here are a few tips to help you.
- Pay your bills on time. If possible, ensure that family members do the same.
- Bad credit behavior by a family member can affect your good credit.
- Ensure that you are on the electoral register. This confirms to lenders that the current and past addresses in your credit report are accurate. The electoral rolls are updated monthly.
- Establish a stable residence. Lenders consider people who stay in one place for a long time to be less of a credit risk than those who move frequently.
- Similarly, do not change jobs frequently. Lenders like to see employment stability.
- Avoid making many applications for credit in a short amount of time. This could be an indicator of possible financial problems.
What to do if you are turned down for credit
If your credit file contains incorrect information, it may affect your ability to get credit. If a lender turns down your application for credit, wait before applying to another lender. Instead, request a copy of your credit report from each of the three UK credit reference agencies. They are:
PO Box 491
Leeds LS3 1WZ
Telephone: 0870 060 1414
Consumer Help Service
PO Box 8000
Nottingham NG80 7WF
Telephone: 0870 241 6262
Credit File Advice Centre
PO Box 1140
Bradford BD1 5US
Write to the agency and enclose a cheque or Postal Order for £2. Experian allows consumers to request their report by telephone (0870 241 6262) and pay for it with a credit or debit card. With your request, include your full name, date of birth, address, post code, and any other addresses at which you have lived in the past six years. You can also request your credit report online from Experian(www.experian.co.uk) and Equifax (www.equifax.co.uk). The agencies are required to reply within seven working days.
How to handle problems on your credit record
When you receive your credit report, review it carefully. If it contains incorrect information, contact the original creditor. If you can prove that the creditor provided inaccurate information, the creditor must update their records and notify the credit reference agency within 28 days. If the creditor does not do so, send written documentation about the problem to the credit reference agency. They will investigate and change their records if appropriate.
County Court Judgments (CCJs) remain on your record for six years, regardless of whether you have paid them or not. If you have repaid a CCJ, obtain a Certificate of Satisfaction and send a copy to each credit reference agency. Having this information in your file will reflect more favorably on your record. Bankruptcies also remain on your record for six years. If your bankruptcy has been discharged, request a letter from the Official Receiver and send a copy to each agency.
Does your credit file show missed or late payments? If you have good reasons why you had missed or late payments, send an explanatory note to the credit reference agency and request that they include it with your file.
Once you have reviewed your credit record and requested any changes, you can once again proceed to apply for credit. If one lender refuses you credit, don’t despair. Just because one lender turned you down does not mean all lenders will. Many lenders specialise in offering credit to consumers who have had past problems.
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