What Is Credit Rating?
Your credit rating is influenced by all the forms of credit that you currently hold. Every time you make a payment, miss a payment, make an application for a credit card or simply close an account it is all stored on your credit file. Consumer credit files are maintained by two main credit reference agencies; Experian and Equifax. Their business is to know as much about your credit activities as possible so that lenders and credit companies can get information on you as and when they need it.
Credit lenders and credit reference agencies go hand in hand. Lenders report all credit activies to the agencies so that they can keep a record and on the flip side, credit reference agencies provide consumer credit details to lenders whenever you make an application for a piece of credit. The lenders use this information to determine whether you meet the criteria for their loan product. If the way you’ve handled your credit in the past isn’t up to scratch, you probably won’t be lent any money!
What Affects Credit Rating?
First, let’s list some of the different types of credit available;
- Unsecured loans (not mortgages)
- Secured loans (mortgages and 2nd charge mortgages)
- Payday loans (short term finance)
- Mobile phone contracts
- Hire purchase goods
- Store cards and catalogues
- Overdraft facilities
- Credit cards
- Car credit
This isn’t an exhaustive list, but it hopefully gets the point across that credit is everywhere in our lives today and therefore maintaining a good credit record is almost essential. In addition, many employers will run a credit search on their job applicants, and if the applicant’s record isn’t up to scratch then they may not get a look in at employment!
There are many actions that can have a negative effect on your credit record. This is a list of a few;
- Many credit applications in a short space of time (shows that you may be desperate for money or are being consistently turned down – lenders will see these application marks and wonder why)
- Lots of available credit (if you have many credit cards with unused balance this is a cause of concern for lenders)
- High debt to income ratio
- CCJs or Defaulted payments
- Missed payments (even 1 or 2 missed payments on a credit card can have a huge negative impact)
- Moving address frequently or not living at your current address for very long (lenders may feel you will be hard to contact in the event of missing payments)
- No fixed landline (as above)
- Turbulent employment history (again, moving jobs a lot isn’t seen as a sign of security for lenders)
- No existing credit (this is often seen as a strange one, but if you don’t have existing credit then lenders have nothing to gauge your ability to repay credit on)
How can you Improve Your Credit Rating?
There are a number of things you can do with your current credit to help bolsten your current rating;
- Make consistent and timely repayment of credit
- Pay more than the minimum payment each month
- Close unused credit accounts
- Obtain a fixed landline number
- Make sure you are on official registers at your current address
If you don’t have any current credit, or even if you have, there are a number of essential steps you can take to improve your credit record;
- Order your credit reports from Experian and Equifax. You can do this online for a small one off fee
- Review your reports and make sure any credit listed is your own (sometimes other members of your household or previous house occupant details can end up on your report). Report any problems to the relevant agency.
- Apply to remove any bad credit marks such as ccjs and defaults or bankruptcy if they have been on your report for more than a few years. You won’t always be able to do this, but it is usually worth a shot.
The next steps after this are to (ironically) obtain new credit and make sure you manage it in an efficient, timely and consistent fashion. If you are seen to be managing your liabilities effectively, then lenders will be more willing to lend to you in the future.
It’s sometimes hard to obtain new credit, especially when your record is less than perfect in the first place, however, there are usually credit cards aimed at this specific purpose. They normally have a high APR (to help offset their risk), but as long as you ensure you spend a little on it each month and repay the entire balance on your next statement, you should incur no interest AND your credit rating will improve no end!
You can read more on improving your credit history at www.guarantorloanscompany.co.uk/guides/improve-your-credit-rating.html