We live in a world nowadays where credit is a normal part of everyday life. Whether it is credit cards, loans, mortgages, catalogues most of us have credit in some form or other. It can build up surprisingly quickly and it is so important to keep things under control and maintain a good credit rating.
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So what is a credit rating and why is it so important?
Every adult in the UK will have a credit rating or credit score unless they have never taken out any form of credit or not opened a bank account. Your credit rating is an assessment of your credit; how much credit you have had in the past, your ability to pay your credit bills on time and the level of the repayments and how much credit you currently have. All of this information goes towards making your credit rating and it gives a future lender an overall assessment of how likely you are to fulfil your financial commitments. It is worth noting that different lenders do assess your credit rating in different ways, so you may get a rejection from one and an acceptance from another, based on the same information.
Credit ratings are important for a number of reasons. Lenders don’t want to create more debt for someone who already has too much and equally they are not going to lend to someone with a history of not paying previous debts back. A bad credit rating can affect your likelihood of getting bank loans, car loans, mortgages, credit cards but it can also affect your chances of renting a property or getting mobile phone contracts. It is also something that could affect opening a bank account and TSB Bank offer lots of information about managing debt along with all of the information about their products on their website.
Your credit rating can also be affected by not having any credit. If you assume that because you have never had credit that will automatically give you a good credit rating, that is sadly not always the case. Someone who has regularly had manageable amounts of credit and has always repaid their debts may well have a better credit rating than someone who has never had credit.
So how can you improve your credit rating?
Check your credit rating
The first step is to find out your credit rating and check the facts. There are three credit reference agencies Experian, Equifax or Callcredit. A credit report costs a few pounds but it is money well spent. It will give you a detailed breakdown of any credit you have had and it will also tell you who you are financially linked with and you can see if anyone has taken out credit falsely under your name. It may be worth the investment to check all three agencies as different lenders will use different credit reference agencies. Make this an annual thing, don’t just do one credit rating check and assume that is it. If you check your credit rating annually, you will see if anything has changed and you will be better equipped to deal with any problems or changes that might affect your chance of borrowing in the future.
Register to vote
If you are not on the electoral roll, you probably won’t get any credit at all. It is quick and simple to do and you can register online at About My Vote, enter your postcode, fill in your details, print it off and sign it. The form then needs to be printed out and sent to your local electoral registration office.
Always make your repayments on time
It sounds obvious but this is one of the most important factors which will affect your credit rating. Lenders are mainly checking to see if you are likely to repay the credit you are applying for. Late payments and missed payments can seriously damage your rating. Set up Direct Debit repayments for everything so that you never miss a deadline.
Check who you are financially linked to
When you get your credit record, it will tell you who you are financially linked to. This can be partners, flat mates and even ex partners; anyone that you have shared financial products with; loans, mortgages, energy bills. If that person’s poor credit rating is affecting yours and you no longer share any financial connections with them, you can write to the credit reference agencies and ask to be disassociated from them (a notice of dissociation).
Don’t apply too often
If you apply for credit, it is makes an impact on your files and a number of application close together can give lenders the impression that you are desperate. Space out your applications and remember that these applications remain on your file for a year. Some sites offer eligibility checkers which can be a good way of seeing if you would be eligible for credit without impacting on your credit rating.
The important thing with credit is to remember that it is a debt that has to be repaid and to borrow sensibly but keeping a close eye on your credit rating should be a part of your annual financial review as it can have a huge impact on your financial future.
This post was written in association with TSB
