personal loan guide

Lenders want to make sure that you are a good risk and do not have a history of bad debts and unpaid loans behind you. To do this they will check your entry on credit registers. Credit reference agencies such as Experian, Equifax and CallCredit PLC hold factual information about you and this allows a lender to check your name & address and your past credit history, including any County Court Judgements or defaults recorded against you. A poor credit record won't necessarily prevent you from getting a loan, but you will probably have to pay a higher interest rate. The self employed, or those - increasingly common these days - on short-term contracts may not be such an attractive risk to lenders. People are refused credit for a number of different reasons and there is no automatic 'right' to credit, although it is illegal to refuse credit for reasons such as race, gender, religion, sexual orientation or address. A common reason however for being turned down for credit may be because information held about you by a credit reference agency, or information provided in your application form, suggests that you will have problems repaying.

CREDIT REFERENCING AND CREDIT SCORING - HOW IT WORKS

Most lenders go through three main credit reference agencies for information on your financial past - Equifax (www.equifax.co.uk), Experian (www.experian.co.uk) and CallCredit PLC (www.callcredit.plc.uk). These three agencies, although business rivals, work pretty much along the same principles.

Each compiles credit histories from a number of different sources, including the electoral roll, county court judgements and how effectively past debts have been paid. Every time you open a new form of credit it will leave an electronic foot print on your record, which the agencies use to compile a credit 'scoring' system. When you apply for a personal loan, the lender - be it a bank, building society or whatever - will firstly run a credit check on you to see what kind of 'score' you have.

If you are turned down for credit, this is not a decision made by Experian, Equifax or CallCredit PLC, but by the lenders, based on their own criteria. If you want a copy of your own credit report, both firms will oblige. Experian for example has a low cost credit report order-line: (0870 241 6212). You will need to have handy your name, date of birth, current address, any previous addresses over the last six years handy, plus a credit card or debit card in your own name. The fee for ordering a credit report by phone is £2.50.Reports should be sent out within 7 days.

For a more instant look at your credit history, Equifax offers an online service, for which it charges £11.50, or its postal service if preferred costs £8.25 for a report.

If a lender refuses you credit, it must say why. Under the Data Protection Act, if you are refused credit, and scoring was used to help the lender decide, you can ask for a review of your application.




WHAT IF THE RECORDS HELD BY THE REFERENCE AGENCIES ARE INCORRECT?

It is possible for incorrect or outdated information to appear on your credit report. If it does, it can affect your chances of getting the loans, credit cards, and other credit products. If you find an error, take the following steps to correct the information as soon as possible.

It's important to keep a record of everything you do. If sending via post, send all correspondences return receipt requested, and make copies of any letters or documents you send. Never send original documents.

In the first instance, you should contact the appropriate creditor or lender before contacting a credit reference agency. Most large creditors have standard procedures for customers to dispute items on their account. If you have proof that the item in question is incorrect, it should be resolved quickly.

If the creditor finds that the disputed information is indeed incorrect, the creditor is required to update its records both internally and with the credit reference agencies it deals with, usually within 28 days.

Always follow up your phone calls with a letter. List each disputed item, and state how it is inaccurate, attaching copies of all relevant documents. Include your full name, account number, the amount in question, and the reason you believe the item is wrong.

If you cannot resolve the problem with the lender, contact the credit reference agency that is reporting the item in question. You will need a printed copy of your credit report from them.

After you send written documentation of the inaccuracy, the credit reference agency will review it. If further investigation is required, they will provide notification of your dispute, including the relevant information you submitted, to the source that supplied the disputed information to them.

The source will then review the information, conduct their own investigation, and report back. The credit reference agency will then make all appropriate changes to your credit file based on the investigation, and notify you of the update. How can I improve my credit rating?

Make sure all your payments to creditors are made on time. If you are forced to miss a payment, make sure you tell the creditor and the payment is made the following month.

Also, simple measures such as making sure you are on the electoral role or filling out credit application forms correctly will help boost your rating. You should also buy your credit history from the ratings agencies and make everything is correct and up to date. For example, if you have paid a county court judgement, make sure it is shown on the file.

If a bankruptcy order is annulled ensure a copy of the order of discharge or annulment is distributed to credit agencies.

Lenders can also search your credit report more than once during a single application and if this occurs you should again alert credit reference agencies. Reference agencies also allow people to explain why they may have had a period of poor credit performance. You can also attach a 'notice of correction' on their report explaining why they missed payments.

Your credit history is a valuable asset because it allows you to take advantage of the competition between lenders - meaning you can shop around for the best rates or terms on the market. Each different lender takes a number of different factors into consideration when deciding to offer a customer a credit facility such as a loan, a credit card or a hire purchase agreement.

You should also try and avoid multiple applications for credit within a short period of time. Comparing the best products on the market will not result in credit searches being registered against your name, however as soon as you submit an application to a lender a search will be registered as part of the application process.

If there is financial information on your credit report linked to other people's names and you have no financial connection with those people you can ask the credit reference agency to remove the information from your report. This is useful where the information held could affect your own credit worthiness.