Credit Ratings Explained

Posted on 13 Jul 2016 by

If you’ve been trying to get a mortgage on a house, you’ll likely have bumped up against your credit rating. Good or bad, it’s a metric which decides how much a company will lend you, the interest rates you’ll be charged or even whether you’ll be lent money at all. However, if you’ve never paid attention to your credit rating before, it can come as an immense shock when you’re knocked back because of it. In this guide, we’re going to share with you everything you need to know about your credit rating.

What is a credit rating?

A credit rating is a number assigned to you based upon your history of credit, which is found within a credit report. Credit reports can be accessed through one of the three credit reference agencies in the UK: CallCredit, Equifax and Experian. Each will offer slightly different versions of your credit report, because lenders don’t always share the same information with all three credit reference agencies.

As a rule, the following information is included in your credit report, and is compiled from information from banks, building societies and credit card companies which you have borrowed from in the past:

  • Your name, address and date of birth
  • Whether you’re on the electoral register for your current address
  • How much you owe lenders at the moment
  • Any late payments on existing or past credit card or loan accounts
  • Missed payments on existing or past accounts
  • Any county court judgements against you
  • Whether your home has been repossessed or you have moved away with outstanding money owed
  • Whether you’ve declared bankruptcy or entered into an Individual Voluntary Arrangement.

Contrary to popular belief, your credit rating doesn’t include things like your salary, the amount of money you have saved or your criminal record. These things will not affect your credit rating either.

How can I improve my credit rating?

If you’ve been informed that your credit rating isn’t good enough for a loan or mortgage, it can be incredibly distressing. Naturally then, you’ll be looking for ways to improve that. Here’s our top five tips for turning around your credit score:

  • Correct mistakes on your credit report: Mistakes can appear on your credit report, and if they aren’t correct, they’ll be treat as though they were fact. By checking your credit report and flagging any mistakes, your credit agency will be forced to investigate, during which time the flagged sections will be ignored by any potential creditors.
  • Get on the electoral register: By getting on the electoral roll for your current address you’ll instantly improve your credit score. Plus, you’ll be able to vote, which is a nice bonus.
  • Close your old credit card accounts: Got a load of old credit cards sat around that you aren’t using? They’re harming your credit score, and should be closed down. Lenders look to how much credit you already have available, and are unlikely to want to offer you more in case you take on too much debt.
  • End financial associations with ex-partners: Your credit rating can be affected by being in a financial association with somebody who has a bad credit rating. Joint bank accounts, loans or mortgages with somebody who has bad credit negatively affects yours, regardless of whether the payments are being made on time.
  • Start building a better reputation: Ultimately, your credit rating will be determined by your ability to make debt payments on time. Repairing it is a matter of proving to future creditors that you’re a responsible lender, and that only comes with acting responsible.
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