Understanding your Credit Score
You’ve just been to the car dealership, put down a few quid deposit on that car you’ve had your eye on and filled out the credit application form. The salesman has been all bonhomie and the finance department has given you the red carpet treatment. They have submitted your application to their financiers and the answer has come back “Declined”. You’re devastated. Not only because of missing out on the car you so love, but also because you have no idea as to why they declined the loan.
Is this a scenario that has played out in your life? I had it happen once and was angry as well as frustrated because when I checked my Credit Report, which I applied for immediately, there were things on there that were incorrect! Maybe you weren’t buying a car, maybe just a new bed and mattress or a new laptop. Shops that sell these things offer ridiculous deals of no interest for 2 years or 1 year and sometimes it makes sense to use credit. If you can get it.
Your Credit Report and Score
In a previous article, I discussed your credit score and how it was made up. Lenders use that credit score to calculate, through their own algorithm, what the risk is of lending you money. Your ability to repay a loan is worked out using the percentages allocated to the Credit Score’s different elements. The thing is, you need to be aware of what information is in that report.
Did you know that every time you applied for a loan, it was recorded on your report? Lending companies are also human insofar as that they can forget to enter data. They even enter wrong data. Unless you check your Credit Report, you would never know that. A simple entry error affects your score and affects your ability to successfully apply for another loan. Even worse, it’s tough for you to get that entry removed.
Credit Card Increase
Doesn’t it make you feel good when your bank sends you a letter and says that you can apparently easily handle repayments on your £2000 limit, so how about increasing that to £3000? You say “Why not”, and go ahead. That little change is a credit application that goes on your score card in the area of New Accounts and adds to your liabilities. Your credit card liability is not what you OWE on your cards, it’s the LIMIT on your card.
A declination on a loan is not the end of the world but it does go on your Credit Report. You can go back and make another offer on the car by providing a bigger deposit. No doubt, the financial guy probably told you that after getting the first decline. The lender probably told him to tell you that anyway. If you run around from place to place applying for loans, it looks awful on your Credit Report.
Your Credit Report is free to obtain a couple of times a year. Order one, look at it and make some financial decisions. Stop borrowing or consolidate loans or be careful what you borrow money for. The other alternative is to save the money you need and pay cash. Try it!