How The Smallest Credit Rating Problem Can Wreck The Biggest Application

How The Smallest Credit Rating Problem Can Wreck The Biggest Application

by Rebecca Hall on 14 Apr, 2012

Most of us get a little bit nervous when we’re waiting to hear if we’ve been approved for a loan or credit card. Obtaining credit is not your right and lenders have the final say about whether they want to let you borrow their money. Around one third of applications are turned down and, unless you scrutinise your credit history, you may never know why.

Your credit report gives lenders an insight into your financial personality and helps them decide if you’re a risk worth taking. The decisions you make about how you handle your money will impact on your credit rating and influence the outcome of loan, credit card or mortgage applications.

You may think you’ve got a clear history. You pay your bills on time, you don’t have any outstanding debts and you’ve got a well paid job. Think again – because the smallest oversight can make a massive difference.

Every lender applies its own formula when assessing you for credit. One bank may accept you with open arms while another may choose to steer clear. Similarly, you may find the very lender that turned you down for a credit card is happy to let you take out a mortgage.

Whenever you are considering applying for credit make sure you check your credit history first. Credit reference agencies must provide you with a “Statutory Credit Report” for a fixed fee of £2. But you can also access a free online credit check and get a copy of your free credit report.

Arm yourself with the same knowledge as your lender and you put yourself in a powerful position. If you’re considering a big application, give yourself enough time to correct any errors in your history and address any bad credit habits and that are likely to impact on your score. Be sure to seek debt help before your finances get out of hand.

For example, cancel cards that give you access to credit but that you no longer use. Make sure your address is correct on all your credit contracts including mobile phones. Consider adding a note of explanation to any anomalies that you can’t get amended.

When you’re thinking of buying a house or getting a new car checking your credit rating is unlikely to be top of your list. But it is not an over exaggeration to say that credit score surprises can pull the rug from under you.

In February 2011, Guardian Money reported how a missed mobile phone bill payment of just £7.91 threatened house hunter Adam Vaughan’s chances of getting a mortgage. Twelve months later and another shocked homebuyer is in danger of losing the mortgage he needs because of a £57 missed payment.

Both cases were rooted in genuine oversight, misinformation and lack of awareness. They seemed trivial matters but the potential consequences were catastrophic. Even when the bills were paid, the credit history remained blighted.

It’s imperative to keep tabs on your credit report and it’s an easy thing to do especially when there are offers to take a free credit check online. Make checking your credit history a part of your annual financial spring clean. Apply for a copy of your report and take advantage of the free credit score offers available online.

About the Author

Rebecca Hall

Rebecca Hall worked as an independent mortgage adviser for 10 years before turning to financial journalism full time. She has strong links to the CAB advising families on mortgage refinancing.