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"How do credit ratings work?"

When you apply for a credit card, store card, hire purchase or loan, most lenders go to credit reference agencies for information on your financial history.

Credit reference agencies compile credit histories from a number of sources, including the electoral roll, county court judgments and how effectively past debts have been paid. Every time you open a new form of credit it leaves an electronic footprint on your record.

A credit rating tells a lender or investor the probability of the potential customer being able to pay back a loan.

You could struggle to borrow money if you’ve never taken out credit before. In fact, the more loan repayments you’ve successfully made on time, the better your credit rating is likely to be.

The decision to turn borrowers down for credit isn't made by the credit reference agencies, but by the lenders.

How can I improve my credit rating?

creditbuilder is a great way to prove to lenders that you are reliable and credit worthy, and improve your chances of being accepted in the future. The following simple tips could add to the positive effects of creditbuilder, and help your new credit history to gain momentum:

• Pay all your bills on time.
• Try to make up any missed payments as soon as possible.
• Don't keep reapplying for credit if you’ve been refused. Being declined a lot can damage your credit rating.
• Only make complete and correct credit applications. Inaccuracies and leaving out information could affect your ability to get credit.
• Make sure you’re on the electoral roll.
• Make sure all court judgement information is correct.
• You may want to add an explanation to information held by credit rating agencies, such as why an account went overdrawn, or why you missed any repayments. This explanation, called a Notice of Correction, is a statement of up to 200 words. Any future lender who searches for your report will see any mitigating circumstances.

How can I check my credit rating?

If you’ve been refused credit, you can ask the lender for the name and address of the agency which provided the information. You can then write to the agency asking to see all the information about you on their files.

To see the information that credit agencies have on you, you must:

• Send a £2 cheque or postal order (this will not be returned)
• State your full first names, surname and address including postcode
• Give any other addresses you have lived at during the last six years. (This helps the agency to trace all the information it holds about you)

The agency must reply within seven days. It’s a good idea to keep copies of any letters you write and to have proof of posting or recorded delivery number. They may be useful later if there’s a disagreement about your file.