Credit ratings are probably the most misunderstood of all financial products (excluding, perhaps, the recent debacle with PPI). Most people assume that there’s some sort of score next to your name somewhere out there in the world of financial institutions, but it’s not strictly true. There are ways of finding out your credit rating, but it’s not all you need to consider when applying to borrow money.
That said your credit rating probably is the most important factor to whether you get a loan, or a mortgage, or a credit card approved, which prompts the immediate question:
But how do I check my credit rating?
The answer is to go to the website of a credit ratings company like Credit Expert, however, the story does not end there, and here’s why.
When you apply for any financial product the lender will make some sort of judgement on whether you’re the kind of customer they’re looking for. The kind of customer they’re looking for isn’t necessarily someone who’s reliable and always pays their credit card bill on time, what they’re looking for is someone who only pays the minimum amount, and accrues a lot of interest (and hence profit for the bank).
So, you could be someone with a theoretically perfect credit rating, and get rejected for something, whilst someone else would get approved despite having had problems with debt in the past.
The credit ratings companies keep a list of all your previous financial activity, and the banks access this to help them make their decision on your credit-worthiness (they also have an application form to help them out). Therefore, checking your credit rating gives you access to the same information that the banks have, although that doesn’t necessarily mean that you’ll know whether they’ll approve you or not.
However, in general, it’s fairly safe to assume that most banks will approve you if you do have a perfect rating, though it’s not 100% certain.
The other thing to bear in mind is that the simple fact of making a credit application (and the resulting check on your record with the ratings company) can have a negative effect on your credit rating. The agencies assume that if you have many checks, it’s because you’ve been rejected many times, and therefore that there’s something to be concerned about, so it’s important not to make too many applications at one time, otherwise you reduce your chances of having those applications accepted.
Credit ratings are a tricky thing, but ultimately, if you act in good faith and have a fair idea of your rating when you apply for a product, you can always appeal if you get turned down.