2 Credit rating agencies and you
Your credit rating, which is allocated to you by credit rating agencies, is a key factor in your ability to borrow money.
As soon as you open a bank account or take on a credit card from the age of 18 your credit history is recorded and a profile of you starts to build. The main UK credit rating agencies are:
These agencies will score your creditworthiness and keep a credit file on you.
Where do they get the information about you?
This is provided by your bank or credit card provider and other organisations that have extended credit to you. They include your phone provider if you have a contract with them.
The information covers the amount of credit granted to you, whether you make repayments on time and the proportion of your bill that you repay each month.
Increasingly financial companies are using what are called ‘geo-demographic models’ to help them assess customers. For example, postcode profiling of the location where you live can help draw up a picture of your likely financial lifestyle based on census and other survey data. One insurance company recently tried, unsuccessfully, to access information from Facebook to analyse motorists’ profiles for clues about how sensible they are. Facebook blocked this move but it highlights the need to be careful about what you post on social media given who could be watching!
Your credit score will be accessed by financial and other institutions when you’re seeking to borrow money from them. A poor credit score means you will be turned down for a mortgage when you’re seeking to buy your own property.
Have you taken a look at your own credit rating? It’s recommended that in future years, and particularly when you become active borrowers, you should keep an eye on your credit files at least once a year.
Watch this video where Martin Lewis uses a storyline based around exchanges in a non-alcoholic bar to illustrate the key principles that will affect a person’s credit rating.