When you apply for a personal loan, a mobile phone contract, broadband; or any service requiring personal credit, your details will be processed through a credit check to assess your eligibility.
What's a credit check?
The loan company will refer the details you provide to a credit reference agency. Credit reference agencies have access to data regarding your financial history, as well as the financial history and any debts associated with previous addresses you've lived at.
You'll be asked to provide a variety of data, ranging from your current incoming and outgoings, existing debts, and time at previous addresses, in order for you to be given a credit rating and associated risk score.
Each time you apply for credit, and the relevant checks are performed, records of the application are noted on your credit history. If you're regularly being refused credit, it's worth noting that repeated refusals for help over a short period of time are going to diminish your credit rating.
If you have no previous credit problems, it's likely that your application will be straightforward and you will be approved the loan; assuming of course, that it's deemed you'll be able to keep up the actual repayments with your current financial situation.
If you're refused the loan, you should look into obtaining a copy of your credit report, and check out our advice for improving your credit rating. Otherwise you may like to consider other options such as applying for a secured loan, or looking for a guarantor.
Performing a self check
You're legally entitled to have access to the information credit reference agencies hold on you, and as such you can use it to monitor and improve your credit rating.
'Credit Monitoring' was spotted as a niche service quite a few years ago now, and you can subscribe to the three possible credit reference agencies to monitor your score via the internet. - The only problem is that it's a paid subscription service, and could end up costing you around £180 a year – not something you'd likely want to do if you're trying to improve your financial standing.
Fortunately, you can sign up for a free trial, which will give you access for around 30 days, allowing you to get a printout or screenshot, which is basically all you need to begin with.
Alternatively if you prefer, you can write and request the statutory report that the credit agencies are obliged to provide; for the measly sum of £2, which covers their processing fees, and contains all the info you'll need.
There are only three credit agencies that are used for processing credit checks; Experian, Equifax and Callcredit. You should check all three if possible as there is no way of determining which will be used when you apply for some form of credit. Experian is the largest, and should be prioritised as first if you're short on time. If you're going for the free trial option via the internet, both Equifax and and Callcredit can be checked via one website called 'checkmyfile', which also offers a free trial period to try and lure you into a subscription. Don't forget to cancel these trials before the 30 day period is up – ideally you should cancel as soon as you've printed off a copy of your credit score, as you're now ready to start analysing and improving your rating.© Andrey Popov | Dreamstime.com