Understanding what affects your credit rating

Understanding what affects your credit rating

A good credit rating can be an invaluable asset, especially if you're looking to take out a large-scale loan and want to enjoy the best deals. Your credit rating gives potential lenders a fair idea of how likely you will be to repay loans on time, making a stronger credit rating advantageous to demonstrate your low risk and eligibility for more affordable rates.

Even if you work hard and are a high earner, many aspects of life still depend on credit - from taking out a loan on a house or car to insurance policies and even simply applying for a new credit card. Understanding some of the factors that lenders take into account when assessing your credit rating can help you to ensure that you keep your finances in order and help you to improve your chances of being successful when applying for credit. If you have had difficulty in obtaining credit, knowing how credit ratings work could help you to see potential reasons for lenders rejecting your credit applications and enable you to find ways in which you could improve your credit score.

Many factors can contribute to a good credit rating, from the length of time you've lived at your current address and your employment status to whether or not you are listed on the UK electoral register. However, the largest portion is naturally based on your payment history, as lenders will be most interested in seeing whether you are capable of making prompt and regular repayments, or are likely to fall behind and face collections.

The amount of outstanding debt that you currently have is another major contributor, which means everything from your mortgage to your credit cards. Different lenders assess this using different criteria, but if you have large amounts of unpaid debt, it could have a negative influence on your credit score. Even if you are up to date with payments on your current loans and credit cards, older debts could still affect your credit score, so it's worth checking your credit records to make sure that you haven't forgotten about anything if you are having problems with obtaining credit. However, simply having some form of credit will not necessarily be detrimental to your credit rating, as it will mean that you will have a payment history on your records for lenders to check.

Unfortunately, mistakes are occasionally made on credit records, so if you have had issues with getting credit, it's also worth checking to make sure that your records are accurate. If there are errors on your credit report, you can apply to have these corrected.

If you're interested in analysing your credit rating in detail, or believe there may be errors, it's now possible to obtain a copy of your credit report from credit reference agencies for a small fee. This can sometimes prove invaluable, if you discover that old debts or incorrect details are harming your credit rating and making it more difficult for you to take out new loans.

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