Understanding your Credit Report

Sometimes you might be confused as to why you have been turned down to make a new purchase or when you have applied for a loan, and wondered what the problem is. Most people do not fully understand credit ratings and how they work. Below we will attempt to break down the mystery behind credit decisions and explain how credit scores are calculated and what you can do if you want to challenge or improve your record.

Several factors are involved when a lending decision is being made: the information you provide when you fill out the application form, and also the content of your personal credit report.

Many people do not realise that they have the right to view any information contained in a credit report to make sure it is an accurate picture of the situation. You are then fully entitled to apply to have a correction made if you think there is an error. It is very important to agree with your credit report as your credit rating could also affect the rate that lenders will offer you, which could lead to more expensive borrowing.

Credit reports are put together by credit reference agencies using information mainly from two sources:

1. Information gathered from financial institutions and lenders, for example credit accounts, financial associations and credit applications.
2. The Public Record: for example, court judgments, electoral roll information and bankruptcies.

On application for a loan, normally the lender will contact a credit reference agency to check your credit report and they will then calculate the risk involved and your creditworthiness. The calculations vary from lender to lender and the credit agency does not know how information he has given will affect each separate lending decision.