Credit checking explained

Whether you're applying for a credit card, loan, mortgage or store card, most lenders will carry out a credit check before accepting your application.

They need to perform these credit checks in order to see whether you're a trustworthy person who is likely to pay bills on time.

Let us tell you some more about how it works.

This part of the credit check is carried out during the application process. You will be asked to give details about your employment status, your address, your current bank account and credit card (if you have one), and your income, among other things. The lender will go through your answers with a points system, giving you marks for each answer. If your score is above the limit set by the loan provider, you will qualify for the loan.

Your credit report file (or credit check file) began on the day you first opened a bank account, and records every credit card you've applied for, every late payment you've made and every loan you're paying off.

Most of the information on your credit check report comes from the companies you have credit with, such as banks, retailers and finance companies. The file also contains publicly available information such as your address and any County Court Judgements (CCJs) against you.

You have every right to check your credit file: the Financial Services Authority can help you with this. If you believe the information obtained for your credit check is incorrect, you may file a statement explaining why. Inaccurate information can be removed but no one can have accurate information removed from your record.

Yes, but unfortunately, lenders offering lower APRs tend to have stricter credit check systems and are more likely to reject your application. You must ensure that you are honest and answer 'yes' when you're asked whether you've had credit problems.

With the uSwitch.com personal loan comparison service you can compare the personal loans available that will accept applications from people with poor credit ratings. This will save you the hassle of having your applications rejected, which can also show up as a bad sign in future credit checks.