Your credit rating and its importance

Your credit rating is not just a number that you don't have to worry about. It can play a critical role in the decision when you apply for credit, whether for a mortgage, a credit card or when trying to finance your next car.
11-September-16
Your credit rating and its importance

Your credit rating and how important is it

When we’re young, we watch TV shows where jokes are made about credit scores and the comedic results of having a low score. Unfortunately, as we get older we realise that it’s no laughing matter. But what is your credit score, how can you find out more about it and, perhaps most importantly, how can you take steps to improve it?

Your credit rating is a statistical method used to determine how likely it is that you’ll pay back money that you have borrowed. Factors taken into account when calculating a credit rating include a person’s credit payment history, their current debts, their credit type mix, the time length of credit history, and how frequently they apply for new credit.

The next question is, why is your credit rating important? When you apply for a loan, a mortgage, or a credit card, you credit rating is checked up. Not only could the outcome of this determine if your application will be successful or not, but you could be paying an added risk premium. Those with worse credit scores will be lent money at a higher rate than those with a good credit score, and will pay more in the long run as a result.

There are a few companies that compile credit reports, including Experian, Equifax, and Callcredit. It’s worth looking for a company that will do it for free, or a few pounds at most. This credit report typically includes info about your credit accounts, repayment history, and public record information, among other details.

If you’re less than pleased with what comes back, there are steps you can take to improve your credit score.

Make sure you’re on the electoral register. It will be much harder to get credit if your name isn’t on it.

Make loan payments in a timely fashion and for the correct amount.

Don’t ignore overdue bills. If you’re having issues making repayments, you should try to make repayment arrangements.

Keep outstanding debt to a minimum.

Avoid overextending your credit and cancel unused credit cards.

Limit the number of credit applications you make. Ideally, you should stop applying for credit until you’ve sorted problems on your credit file.

Source: Bottletop Media 11/09/2016

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