Your credit rating is an important figure as it can decide whether you get a loan,mortgage or even credit card, or not! But what can you do to ensure that your rating is the best it can be and how do little things like missed payments affect your score?
Also known as your 'Credit Score', your credit rating is a gauge of your ability to be able to manage any credit (money lent) to you.
Whenever you apply for finance, whether it is for a new credit card, loan, mortgage, bank overdraft, contract mobile phone or even a monthly car insurance policy, the likelihood is that your credit rating will be checked.
By checking your credit rating, lenders can assess and 'score' you to establish whether or not you are a suitable customer to lend money to. Credit scoring helps lenders to find out about your current and past payment history, and to this end, they can make a decision as to whether or not they offer you credit.
The measures that lenders take when they are assessing customers will differ, as scoring systems will be different for most companies, depending on the type of financial product that they are offering. This means that even if one lender rejects you, based on your credit score and their own scoring systems, it does not automatically mean that another lender will. Not only does your credit score dictate the financial products that you could obtain, but it can also determine the kind of rates that you can get i.e. the better your credit score is, the better rate you are likely to get on your loan, credit card etc.
So, how can you improve your credit score?
The first tip is to get your name onto the electoral roll. If you are not listed on the electoral roll, it's very unlikely that you'll be able to obtain any credit, so if you haven’t already done so, sign up immediately. You can register online at any time on the About My Vote website, so there’s no need to wait for your annual reminder. It’s a very simple process; you just need to search for your local council, fill out an online form, print it off, sign it, and then send it to your local electoral registration office.
Secondly, make sure you make every monthly payment on any credit agreements you have. If need be then pay off any agreements that you have in full and they will then be removed 2 or 3 months later.
Thirdly, check, check and check your credit report each month to ensure it's all correct. Pay particular notice of new "credit searches" as if you haven't made any and they are appearing on your credit report, someone may have cloned your identity to try and get money.
Fourthly, don't keep applying for credit with different lenders or companies. Every time someone does a check on your credit file, this makes another entry that scorers will note.
As per the point above, it pays to keep a close eye on your credit report.
Why not check out Experian or CheckMyScore to get a monthly review of how your credit is coming along.
Next, you will need to ensure that you keep all of your credit repayments up to date and that you pay them on time. If you repeatedly miss payments or do not pay them on the specified date, you can adversely affect your credit score. One or two missed payments may not have a significant impact on your credit score, however, any more and you risk lowering your overall credit score.
If you are having difficulties paying back your debts, always contact your lender, they may be able to offer a revised payment plan to you, therefore potentially avoiding further missed payments, defaults or even county court judgments (CCJ) being made against you.
The next tip is to avoid applying for too many credit products. Many people make the mistake of making a lot of finance applications in order to secure at least one acceptance. If you do this, it may be seen negatively by future lenders, so try to avoid multiple applications if you can.
If you must make several applications for credit, try to do them all at the same time (i.e. on the same day), especially if you have a less than perfect credit score.
It’s also a good idea to obtain a copy of your credit rating file on a regular basis to check that it is up-to-date and that it doesn’t contain any errors. If you spot any mistakes, inform the credit rating company and your lender immediately. If you spot any accounts that you no longer use on your credit file, close them, and always use any spare cash that you have to reduce your debts, rather than keeping money in savings accounts. All of these measures will help you to build and improve your credit score.