Taking a look a credit scores, why they are important and how you can improve it

When you are younger you may not worry too much about your credit rating, or actually have an idea just how important it can be in the long run.
It’s mainly when you are looking to secure a loan, buy a house and apply for a mortgage or maybe even take on a contract mobile phone that you may begin to see how important it is to have a good credit rating.
So what actually is your credit rating/credit score?
It is one way that banks, credit card companies and other lenders make decisions on whether or not to lend you money.
A good credit score will help you to get better rates when you apply for rates or a mortgage.
A bad credit score may mean that you are declined on your loan or mortgage application.

You may have a bad credit score if you are unemployed or without a regular source of provable income, i.e – recently started working and as yet don’t have proof of earning, recently self-employed (being self-employed myself I have had this issue when I first started as I didn’t then have the paper trail to prove my income).

You can also have a bad score if you have had previous loans, credit cards etc and the minimum payments haven’t been keep up to date for example.

Many of us will need to borrow money at some point in our lives, whether to tide us over until payday or to buy a home, most of us will go to our banks, TSB for example, for advise on the best rates.  However, it is important to borrow sensibly and not let debts get out of control. If you over-stretch yourself and do not repay your debts on time, you will damage your credit rating.

How do you check your credit rating?
You can obtain a copy  of your credit file which will contain both private and public information recorded in your name showing all your credit history.

You can obtain this from various credit reference agencies such as Experian, Equifax or Callcredit.

It is actually a good idea to get a copy of this history for your own reference should you have ever been the victim of identity theft, lost your wallet or had it stolen.  It could be that someone else has tried to obtain credit in your name which could then in turn effect your chances of being approved for a loan later down the line.

Ways to help improve your credit rating

  • Make sure your name is on the electoral register
  • Stop applying for new credit cards or loans until you have begun to improve your score, or sorted out an underlaying issue on your credit file
  • Cancel all unused credit cards
  • Pay your bills on time – this may sound simple but if you regularly forget the date a card or loan payment is due then set up a direct debit to at least pay off the minimum each month, if you find you can afford to pay more one month then make an extra payment – the credit card or loan company won’t mind two payments in one month and you will avoid the monthly fee for missed payments.
  • A credit-builder pre paid card is an option for some.  This is a card which is pre loaded with money so you can only spend money which is on that card, you can not over-spend on this.  Some cards allow you to borrow a set amount of perhaps £60 and then you sign a credit agreement to repay the minimum of around £5 each month until this is paid back.  If you don’t miss any payment you will have this noted on your credit score/rating as 12 months of successful payments.

 If you are having credit difficulties you can find lots of information from the Money Advise Service or Citizens Advice

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