What is a Credit Rating and how to check your score

What is a Credit Rating and how to check your score

Getting credit is becoming more difficult today with lots of boxes to tick, forms to fill in and hoops to jump through.  If you are looking for a loan or a mortgage I am sure you will have heard the phrase “depending on your credit score” but do you know what this means?  We have put together a beginners guide to Credit Ratings and how to check your score.

What is a Credit Rating?

A credit rating works out your credit risk or creditworthiness, which predicts your ability to repay the debt and how likely you are to default. A credit rating doesn’t only work out whether or not you will be approved for a loan or other financial products such as credit cards or mortgages but also the interest rate at which your loan will need to be repaid. With the credit rating having an impact on your access to credit and the cost of this credit with the interest rate, a good credit rating is very important.

How are Credit Scores Worked out ?

Credit scores are calculated by Credit Rating Agencies, which use qualitative and quantitative non-public information to develop these ratings or scores.

The Agency considers a number of factors in this calculation including:
• An individual’s history of making credit payments on time
• The total amount of debt being carried along with available credit
• The age of an individual’s open credit lines (more history is better)
• The frequency with which someone applies for new credit
• Not being on the electoral register. This is used by lenders to verify that you’re who you say you are.
• Moving home a lot. Lenders feel more comfortable if they see evidence that you have lived at one address for some time.
• Being tied into any joint form of credit such as bank accounts, loans or mortgages with someone who a poor credit history, known as ‘financial association’, as this will affect your ability to gain credit.

A high credit score indicates a stronger credit profile and will generally result in lower interest rates charged by financial service providers.

Check your credit score

How and Why should I check my Credit Report ?

You should check your credit rating to ensure there are no mistakes that could be causing you problems.  If you do spot any mistakes then you can contact the lender directly to get the details amended.  It can also protect you against fraud.  If you check your credit report regularly, you will be able to pick up on unfamiliar or suspicious applications or accounts and alert the relevant lenders and the authorities to the fraud.

You can access your credit report and check your score by using a free trial service such as that provided by MyCreditMonitor.  You will get a personalised credit report along with tips and advice on improving your score.

How to improve your credit rating

Here are some of the top things you can do now:

1. Make repayments to your financial products including your credit card, loans and mortgage on time
2. Stop applying for credit until you’ve sorted out any problems on your credit file and improved your credit score.
3. Get on the electoral register. If your name’s not on there you’ll find it much harder to get credit.
4. Cancel any unused credit cards.

 

 

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