1. What is a credit score?

Your credit score is the number of points assigned to you by the lender to measure the risk of extending credit facilities to you.

If you are looking for an unsecured loan then the lender's decision to accept or refuse your loan application may be based entirely on your credit score. If you score more than the minimum needed by that lender for that product then there is a better chance of getting all or some of the credit you wanted.

If you can provide security for a loan then the lender may not place great importance on your credit score in deciding on your eligibility for the loan.

2. What determines your credit rating?

Lenders can use different rules and procedures to arrive at credit scores which is why your credit score can be different from one lender to another, and why you may be given the loan or credit card or mortgage by one finance company and not by another.

In general, lenders' credit scoring systems are based on:

1. Your credit report (credit reference file) which is held at the main credit reference agencies: Equifax, CallCredit and Experian.
2. The information you provide in the form requesting credit.
3. The lender's history of lending in specific markets.
4. The lender's product.
5. Your history (if any) with the lender.

Information in a credit report which may affect your credit score can include:

• Credit application searches. Search information is kept for one or two years depending on the credit reference agency and making many application searches over the last six months can lower your credit score.
• Debt collection searches. These are kept for two years.
• Status codes for credit accounts which can indicate how often you have made late payments and how late they have been. Details for the last twelve months can show how close you are to your credit limit.
• Status codes for current accounts which can indicate that overdraft limits have been exceeded for one, two, three or more months.
• Information about arrangements to pay where you have arranged to make reduced repayments because you were not been able to keep up with the repayments.
• Defaults on your accounts – where you have not kept to the terms of your credit agreement. These are held for six years from the date of default.
• County court judgements (CCJ) and high court judgements (HCJ) which will be held for six years from the date of judgement unless it was fully settled within one calendar month of the judgement.
• Bankruptcy orders, Individual Voluntary Arrangements (IVA), Debt Relief Orders (DRO) and Administrative Orders (AO). These are usually kept in your credit report for at least six years from the date of inception.
• Bankruptcy restriction orders (BRO) and debt relief restriction orders (DRRO). These can continue to affect your credit score for as long as the restrictions last, which can be up to fifteen years.
• Mortgage repossessions. These are held for six years from the date of repossession.

Other information which can affect your credit score include:

• If you own your own home.
• Your age.
• How long you have lived at your current address.
• If you are employed or self employed.
• Your earnings.
• The number of children you have.
• The amount of the loan and the repayment period.

3. What is the difference between a quotation search and an application search?

There is a huge difference between how a 'quotation search' and an 'application search' can affect your credit report.

A 'quotation search' record in your credit report lets other lenders know that you are not making an application but just asking for a quotation. Quotation searches can be used by lenders to give quotations for products such as loans and mortgages and should have no affect on your credit score.

Whether you are looking for a secured or unsecured loan, protecting your credit rating can be important when you are applying for loans, especially if you could already have records on your credit file for late payments, defaults or CCJs.

Making an actual application for credit means that the potential lender will do a search on your credit report to check (or recheck) their risk of lending to you. Whether or not you are approved for a loan, a record of the search is logged and an 'application search' footprint is created for other lenders to see which organisation did the search and the date of the search. In general, the more applications you make the more points will the lenders deduct from your credit score when they assess their risk of lending to you. Making many credit applications can negatively affect your credit rating which, in turn, can reduce your chances of getting further credit.

Being refused credit will not be recorded on your credit report but making many applications for credit over a short period can lower your credit score. This is because other lenders may believe, rightly or wrongly, that

1. You have been refused credit which is why you may be trying other lenders, or
2. You may be trying to get too much credit, or
3. You may be in financial difficulties, or
4. There may be fraudulent activity and someone may be trying to get credit in your name.