Factors in a loan application - Importance of your Credit Rating

Your credit history is seen as very important to the loan provider, be it secured or unsecured finance. It basically covers how a person (such as applicant for a loan) has used credit in the past. This can also be a ‘credit rating’ which is very similar. In this case it would be a score (generated to summarise the factors on the history) that lenders can use and refer to quickly.

So why is your history important? Well, as we have explained in previous articles loan providers like to see evidence that the money they give to you will be paid back without any problems on the agreed terms they have set out (this will include paying on a regular basis and the payment of interest for example). One of the primary ways they can do this is by looking at your ‘track record’ with loans and lines of credit. Think about it, the use of history can always be used to guess future occurrences, throughout life. For example Bob, always take the strawberry sweets from the confectionary box. One day, someone buys a selection box as a treat and is passed around to Bob. What does everyone think he will take? – a strawberry sweet. Why do they think this? – it is based on his past actions. The use of historical information in no different for loans. People look at your past actions to gain an insight into your potential future actions or behaviour.

Your credit file is kept on record for finance companies and lenders to look at whenever they receive an application. This is why they will often ask for your address over the past three years. They need this information so they can look you up on the system, which references address. The information is not simply taken so they know if you like to move house. On the loan application form, or before conducting checks on your background they will ask your permission to check the history. This is done so that you will not have unauthorised people looking at personal information, after all we must have some privacy. However if you want the loan to proceed companies will need to look at this, and if you don’t give permission they will routinely decline to lend as they cannot assess you properly.

So what goes into my credit file? How do people obtain ‘bad credit’? – we will explain this in our next article.