What Affects Your Credit Rating Score?

by Kate on July 11, 2014

in Money

A credit rating score is an assessment of your ability to fulfil your financial commitments, such as mortgages and credit card bills. The assessment is based on knowledge of any previous financial dealings you have had. A poor credit history will lead to a poor rating, meaning that lenders are more likely to turn down any applications for credit.

There is no universal credit score or universal black list. Each lender will assess you differently, depending on their own scoring system and the product you are applying for. This means that although one lender may reject your application, not all of them will. Some lenders specialise in products tailored to individuals with a poor credit history; these products are known as bad credit loans. However, the information all lenders use will be the same, and if your application is considered risky for one lender, the chances are that it could be considered risky for others too.

What Negatively Affects a Credit Rating?
Bankruptcy, Individual Voluntary Arrangements (IVAs), court judgements for non-payment of debts, repossession of mortgaged property and missed payments on existing debts, including gas and electricity bills, will have a negative impact on your credit rating. Using more than 80% of your credit limits on credit cards will also have an effect.

Some activities can signal instability or financial stress, such as frequent applications for new lines of credit, frequent switching of debts from one credit card to another and too high a number of credit cards. Periods of unemployment and frequent changes of address also do not help.

Tips to Improve Your Credit Rating
It is a good idea to check your credit rating regularly. Most information held on your credit history file is kept for a minimum of six years. The purpose of your credit history file is to give an overview of your current and recent financial situation, so that lenders are able to judge whether you can make your repayments. Not much can be done about defaults and missed payments in the past, but it is worthwhile checking your credit rating with credit agencies such as Experian, Equifax and Call-Credit to make sure there are no errors on your credit history file that might make your rating look worse than it should be.

Checking your credit rating can also help protect you from potential ID fraud and is a good way of identifying any old, unused accounts that can be closed down. Unused credit card accounts can also lower your credit rating.

If you are not on the electoral register, it will be harder to get credit. Go to aboutmyvote.co.uk, and follow the instructions to make sure your name is there.

If you have a financial connection such as a joint account with a person who has a poor credit history, this can affect your credit rating too. If your joint account is essential, you must work together to improve both your individual credit ratings.

Stop applying for credit until you have sorted out any errors on your credit file and have taken action to improve your credit rating, as numerous applications can have an adverse effect.

Lenders are more comfortable extending loans to individuals who have a proven track record of making repayments on time. Having no credit history can be an obstacle to obtaining credit, since lenders have no way of predicting whether you will meet your obligations. Regular use of a credit card which is paid in full every month is a more positive sign of reliability than no history at all.

Keep your debts under control. Make sure you are able to make your repayments on time. If you’re considering a debt consolidation loan such as the one on offer from Evolution Money, make sure the repayments are affordable and that it is the right solution for you. Don’t max out your credit card. Keeping your spending to within 25% of your credit limit and paying it off in full every month will improve your credit score.

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