Your credit history represents a record of your past financial borrowings, as well as some information on your employment history, address details, and census information. In the UK, credit histories are drawn up from public records by companies like Equifax, Callcredit, and Experian, and are used by banks and other lending institutions to assess your eligibility for a loan.
However, are credit histories essential to your eligibility, and in what sense does a credit history represent something that can be adjusted depending on your situation? From understanding how a credit history shapes perceptions of your borrowing potential, through to the risk for a lender, and the ways in which credit history becomes less important and adjustable, it’s possible to get on top of your financial profile.
1 – Shaping Perceptions
On the one hand, your credit history comes down to the level of risk you possess, or at least the impression of risk that is created based on your past borrowing history. For example, a poor record of paying back credit cards, or a default on a personal loan, will negatively affect your credit history. Agencies compile this information to suggest a general level of risk and trust for repayments to banks and other lending agencies, which will inform, but not define, a decision as to whether you can take on a new loan or credit facility. At the same time, estate agents or insurance company may use your credit history as the basis for checking your suitability for tenancy, or a policy.
2 – Lender Risk
Again, the risk that you pose will come down to the lender in question. A bank may use your credit history as just one factor out of many. While a poor credit history can negatively affect your eligibility, it is possible that different credit agencies will provide differing information, and impressions of your profile. This may be due to having slightly different records. It’s important to remember that credit histories and scores are not a hard science, but a general indication as to your past borrowing history.
3 – Where Credit History Becomes Less Important
Your credit history can become less important if you are applying for a secured loan where the value of a property can offset the level of risk you have previously held. This will depend on the preference of the lender, and the specific value of the property. In this context, a lender may be willing to overlook past credit problems if you have a financial plan set up for repayments against an asset like a house or car. A poor credit history can also be overlooked by lenders that offer payday loans, which require repayment within a month. However, taking on this kind of loan carries significant risks if you fail to repay, as high APR rates can mean that you end up with an even worse credit history.
4 – Ways to Improve Your Credit History
There are many ways in which you can improve your credit history if you’ve had problems in the past gaining credit and loans. You can make a request to see your credit history from agencies for free, or £2 for full documentation. Mistakes in credit histories are quite common, especially when they relate to employment details or notes on the repayment of past loans. You may also want to separate your association with a family member with a poor credit record, as this can drag down your eligibility. At the same time, it’s worth considering a guarantor loan, more information on which can be found at GBP Guarantor Loans. This kind of unsecured loan involves a third party acting as security for your own loan, with the expectation that you make the repayments, and restore your credit history to a positive rating over time.
Author Bio: As a regular blogger across a variety of finance websites, Liam Ohm has a passion and desire to give people important and beneficial advice. In his time off he enjoy running, socialising and networking.