When applying for UK credit cards, the main obstacle you must overcome in order for your application to be approved is to pass the credit check. Lenders use external credit reference agencies to find out more about your financial history, so they can work out the risks and potential profits of taking you on as a customer.
However, there are a lot of myths and misconceptions about credit histories and credit scores, and these can cause people to avoid applying for credit even though it could actually be useful to them. Credit reference agencies use a huge amount of data to come up with their scores, but contrary to popular belief, they don’t use information relating to:
- Your salary
- Any parking fines or driving penalties you may have incurred
- Whether you’ve checked your credit file or not
- Pre-application searches (known as ‘soft searches’) and eligibility checks which some lenders make in order to let you know whether you qualify for certain products
- Your savings accounts and ISAs
- Criminal records
- Information from the Child Support Agency
- Your medical history
- Information on your relatives, unless you have made joint credit card applications or have other joint financial products with family members
- Decline applications – lenders can see how many applications you have made for credit, but they can only guess based on your open accounts how many were approved or rejected
The information credit reference agencies do use
There are several different sources which reference agencies use to come up with a credit score for you. The first is the information you provide when you apply for credit cards and includes details such as your postcode, reason for wanting the loan and whether you own your home or not. Agencies also look at your past dealings with a particular lender, and they use information about missed payments and your spending habits to assess your borrowing behaviour.
Another primary source of information for credit reference agencies is their own data files. The main reference agencies compile information between them, so that they can send data on any UK borrower to lenders. They get their information from places like the electoral roll, court records, fraud data and bank accounts. Banks and building societies, as well as utility and mobile phone companies, all keep records of their customers’ payments and transactions.
Despite all of this information being available to credit reference agencies, who can ultimately determine your fate when it comes to applying for credit, you should be reassured that there are very strict rules in place about what information can be accessed and how it can be used and shared.