Personal Finance 101 - Credit Checks

Credit cards, personal loans, mortgages and other forms of personal credit are an everyday part of financial life for all UK consumers. Looking at the figures for UK personal debt shows that Britain appears to be addicted to borrowing money and still continues obtaining more from the financial institutions. By the end of 2005 the UK personal debt levels stood at a record £1,148, with 83% of this debt consisting of secured mortgage loans. Due to the nations reliance on credit of all forms, it is extremely important to keep a close eye on your own personal financial history and keep up to date with the official credit check reports which can help prevent fraud, and make the difference between acceptance at a favourable interest rate, or outright rejection just when the money is needed the most.

In the UK there are two main credit reference agencies which hold a wide range of financial information detailing a person's continually evolving financial history, these are Experian ( http://www.experian.co.uk/ ) and Equifax ( http://www.equifax.co.uk/ ). By obtaining a copy of your report from each of these sources, (as they may contain different information), you can not only check the accuracy of the information stored and look for any potentially fraudulent entries, but you can also request that any incorrect information is amended to prevent possible future credit problems.

Each lender will weigh the information contained in a person's credit file differently. However there are universal contributing factors which include:

- Electoral Roll information for a person's currently registered address.

- Defaults on any financial repayment contracts, such as loans, mortgages, etc.

- Employment history for mortgage, credit cards, loans, hire purchase and finance agreements.

- Any County Court Judgments.

- The complete amount owed and the number of credit facilities used.

- The number of new credit facilities that have been applied for (both successful and unsuccessful applications).

- The type of credit used.

- Salary details given on the application form.

Lending organisations combine the data obtained through a credit report, along with information acquired from an application form, to produce a credit score. This score represents a measure of an applicant's likelihood to repay debts and to make any repayments on time.

If an applicant's score falls below the lenders acceptable risk threshold, or they don't fit an ideal customer profile, then the application may be completely rejected. It is also possible that a low score may result in acceptance, but at a more expensive interest rate than might usually be offered.

Some credit card providers, such as the Asda supermarket chain's finance services, now provide applicants with a copy of their credit reports with all applications, however, to obtain the best deal it is vitally important that borrowers do some shopping around. When shopping around for credit however, try to obtain as much information as possible prior to making a formal application for credit. Whenever any application for credit is made, a footprint is left on the credit record showing that a search has been made. Credit companies see lots of footprints as an indicator that the applicant may be in severe financial difficulties or even that some form of fraud may be evident. Using one of the various online financial comparison websites, such as Moneynet.co.uk ( http://www.moneynet.co.uk/loans/index.shtml ), enables you to see what is on offer, and what general market rates are available, before any fina!

ncial commitment or full credit search is required.

Even people who are not looking to obtain additional credit may find a credit report useful for peace of mind, and to ensure that their credit details are not being used for fraudulent applications, or as part of the growing disturbing phenomenon that is identity theft.

Disclaimer:

All information contained in this article, is for general information purposes only and should not be construed as advice under the Financial Services Act 1986.

You are strongly advised to take appropriate professional and legal advice before entering into any binding contracts.

Useful resources:

Moneynet loan comparisons ( http://www.moneynet.co.uk/loans/index.shtml )

Experian credit reference agency ( http://www.experian.co.uk/ )

Equifax credit reference agency ( http://www.equifax.co.uk/ )

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About Richard Green

Richard Green lives in Edinburgh, occasionally writing for the personal finance blog Cashzilla ( http://cashzilla.blogspot.com/ ), and listens to music no one else likes.


And here is another random article you might be interested in...

Understanding the Three Different Types of Income

Part of learning to become financially free is to begin to understand that there are three different types of income. They are: capital gains, passive income, and earned income. They are the three types of ways to make money, and are very easy to understand.

Capital Gains - When you buy a stock, and sell it for a higher price, you have made a capital gain. If you buy a house and then later sell it for a profit, you have made a capital gain. If you buy an antique at a low price and then sell it for a nice profit, you have made a capital gain. Capital gains are not passive income. They are a one-time payment that you receive from an investment because your investment has increased in value. Investing for Capital Gains is great because you can keep your money moving, instead of just letting it sit in the bank. The government loves to tax capital gains, especially if you bought and sold your investment in less than one year. Lets say you buy a stock, and the stock doubles in price during the week so you decide to sell it. You've made a nice capital gain, but the government could take as much as 35% on that capital gain, depending where you are in the income-tax bracket. If you hold onto your investment for a year or more, the government rewards you with a more favorable capital gains tax rate.

Passive Income - Passive income is payments that you receive from the assets you have created. These payments usually come monthly, and require little or no work for you to receive them. Some types of assets that produce passive income are rental properties, dividend stocks, and businesses. Assets that produce passive income continue to do so until the asset is liquidated (sold). Passive income is what makes a person rich. If a person has more than enough passive income to cover his or her expenses, that person is rich.

Earned Income - Earned income is the primary source of income for most American's today. Any type of job that pays an hourly wage, pays earned income. People who rely only on earned income, pay the most taxes. Federal, State, Unemployment, Social Security, and Medicare taxes are all deducted from a persons paycheck. With passive income and capital gains, the types of taxes you pay (if you have to pay any at all) depend on your investment. Earned income is not necessarily a bad thing. Having a job or career is a great way to earn the capital required in order to create assets.

Almost everyone who starts his or her own journey to financial freedom begins with earned income. Relying solely on earned income should be temporary. In America today, many people rely on earned income alone, and saving most their earned income for many years until they retire. The path to financial freedom requires making the transition from relying on earned income, to passive income

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About Michael Press

Michael Press is an investor and teenage entrepreneur. He currently owns and operates http://www.passiveincomeinfo.com, a free website with articles about how to build wealth.