Credit and Your Credit Score
When ever you want a credit card, loan, insurance, mortgage or just want to buy something on finance, your credit score is going to be used to assess if you are eligible. Using your credit score, lenders can work out if your are going to meet the repayments and be a good investment.
Lenders are not looking for borrowers who always pay their debt off in record time. They can not make much money off people who pay the loan back too fast. Instead, lenders are looking for people who will be paying interest for quite some time, but are not likely to go bankrupt.
Just because you have a great credit score does not mean that lenders are going to automatically accept you. If you have a credit card with high interest, no annual fee and have always paid your credit card off in full, lenders will not like you. If you never pay interest on your credit card, your lenders will be lending you money each month and getting nothing for it. Your credit score will be too high. They will see you as a bad investment as they are making no money off you.
Lenders calculate a credit score from many sources of data. These sources range from information the company has, to the government and other companies.
The application form is the first source of information that lenders use in calculating your credit score. Details such as your salary, family size, if you own a home and the reason for the loan are all used. Lenders like to target borrowers that have some money but are still not likely to pay the loan off in full.
Past dealings with the lender are also used in the calculation. All your previous iterations with the lender are analysed to help inform the lender of your money habits.
Credit agencies compile information about you and can send this data to any prospective lender. This information can be compiled from electoral roll information, court records, Financial data.
Recently, black lists and white lists are now shared between finance companies. Athough this requires your permission, this gives them access to a lot more information from many other companies.
If you are feeling like your credit score is very personal, well it is. There are some data that companies are not allowed to use:
- The first is any data of fines that you have incurred from courts or driving.
- Savings accounts do not involve credit so they are not included.
- Previous medical history is not included unless you include it on an application form.
- Criminal convictions are not used or listed.
- Information about child support is excluded.
- Information about other members of your family, who you live with, who you have lived with is not included unless you have a joint financial interest.
- Data about student loans is not given to credit agencies, unless you have a court judgement against you for lack of payment.
As you can see, it is important to have a good credit score. Late payments or not paying one company can affect your chances of getting a load with another company.