Buying or renting a property? It pays to know your credit rating. Your credit rating is the means by which all kinds of financial institutions determine whether you are a safe bet to lend to.
If you’re looking to secure a mortgage, loan, bank account overdraft, credit card or even a monthly payment product like a mobile phone contract then the institution you want to deal with will check your credit rating to see if you are a viable candidate. The following guide is designed to give you a brief overview of what credit rating scores mean, how they are calculated by lenders and the key factors that can either negatively or positively affect your score. This should show you the importance of understanding your credit report and show you how you can improve your rating in order to secure the financial product of your choice.
What credit rating scores mean:
Your credit score is essentially a rating derived from a wide array of factors that inform the bank/credit card lender/mortgage broker of your likelihood of being able to make repayments. This magic number will determine what kind of products they will offer you and – even more crucially – which ones they will refuse to offer. The higher the number, the more attractive the products available to you will be. While it’s true that different lenders have different scoring systems and varying levels of acceptable risk, this maxim remains true for all of them.
How they are calculated?
Lenders build up a comprehensive overview of their potential customers in order to make a credit check on them. The resulting credit rating is derived from a variety of sources, including:
a) Understanding Credit Ratings.
b) Your application form: Whenever you apply for a loan, mortgage or financial product, the lender will require you to fill out a form with all of the details that they think are relevant. Obvious factors include your salary and outstanding debts but things like your postcode and whether you rent or own your home are important too.
c) Past interactions: If you happen to have dealt with the lender before, by taking out a previous loan for example, then the positive or negative nature of those dealings will affect your credit score.
d) Credit reference agency files: Every lender utilises at least one credit reference agency and the three main ones in the UK are Equifax, Experian and Callcredit. Their credit report data comes from electoral roll information, county court records, fraud data and records of other lenders who have searched your file.
As you can see, lenders go a long way to build up a picture of your financial viability in order to make their decision on whether or not to lend to you.
Top tips to improve your credit score:
So what can you do to make your credit report as healthy as possible? Understand these key factors and bear them in mind when you’re preparing to apply for any kind of loan:
• One of the most common credit myths is that checking your score will lower it. This is not the case and taking advantage of a free credit report is often the first step towards understanding your score and improving it.
• Being enrolled to vote is a seriously positive factor for most lenders as it indicates stability and conscientiousness.
• Having never borrowed before is not necessarily a helpful factor as lenders have no way of knowing how capable you are of making repayments. Building up a series of prompt repayments on a manageable credit card is a great way to build a positive credit history.
• Errors can happen! Check every detail of your credit report and dispute any mistake that could be hurting your chances of securing approval.
So if you’re looking ot buy or rent, speak to one of our mortgage advisors in Rugby and arrange a casual meeting at your home, place of work, or even the local cafe! They can walk you through the mortgage maze.