Credit ratings

Every time you apply for credit, for example, a loan, a credit card, a mortgage, a mobile phone contract or even car insurance, your credit record will be checked. Understanding and managing your credit score could help you save hundreds of pounds on life’s major purchases; it’s often the case that the better your score, the better rate of interest you’ll be offered.

What is a credit rating?

Your credit rating or score is a value placed on how likely you are to fulfil your financial commitments like repaying loans or credit cards. Lenders use the information you give in your application, but they also rely heavily on data supplied by credit reference agencies to decide whether your application should be approved or rejected.

Credit reference agencies

The main agencies are Experian, Equifax and CallCredit. They assess your ‘credit worthiness’ by looking at factors such as your:

  • History of borrowing and repayment
  • Financial assets or liabilities
  • Electoral roll information
  • Any County Court Judgments you have against you

It’s important to know that there is no such thing as a universal credit rating – the way one lender interprets your credit worthiness may be different to another. So if you’re rejected by one bank or building society, it’s possible that you’ll be accepted somewhere else and vice versa. However, applying to multiple lenders at the same time may impact your rating.

Credit reference agencies base your rating or score on your history of borrowing and repayment in the UK. If you have no debts, have lived overseas, or your borrowing is in your partner’s name only, then you may have very little track record and receive a low score. Their assessment also takes into account any other financial assets or liabilities you might have.

Why are credit ratings important?

Lenders use your credit rating to work out whether or not to lend you money. And if they decide to lend to you, they also use the credit rating to work out how much and at what interest rate.

Your credit rating or score is part of your credit report.Swingometer

What’s in your credit report?

  • Name and date of birth
  • Current and previous addresses
  • If you’re on the electoral register
  • A list of all your credit accounts and the payment history. Missed or late payments will stay on your file for at least six years
  • County Court Judgments for non-payment of debts, bankruptcies and individual voluntary arrangements
  • Details of any people who are financially linked to you – for example, through joint bank accounts and mortgages
  • If you’ve committed fraud

Your report doesn’t include race, religion, salary details, driving fines or council tax arrears.

How you can improve your credit rating

Here are some ways that you can improve your credit rating:

  • Check that the information on your credit report is accurate and flag up any errors – the information may not be up-to-date or your circumstances may have changed
  • You can write to the agency involved to ask them to correct it. Alternatively, you can add a notice of correction explaining the background to the error or to highlight changes
  • If you separate or divorce your rating will continue to be linked if you previously had any joint financial dealings. However, you can add a notice of correction on the account to highlight that the finances are no longer linked
  • Check you are registered to vote at your current address
  • Pay bills on time and try not to miss any payments
  • Stay within the limits of any current credit arrangements you have
  • Close any accounts and cancel any contracts you no longer use
  • If you have any savings use these to pay off any existing debts
  • Build up a credit profile – you want lenders to see you have a good track record of managing credit well. A good way of doing this is by getting a credit card and using it wisely
  • Do not make too many or unnecessary applications for credit at the same time
  • Put a landline number on application forms if you can
  • Beware of fraud – protect your ID06a-CreditRatings

How you can damage your credit rating:

  • By having high levels of debt
  • If you lack any credit history
  • If you have missed repayments
  • If you go over your agreed overdraft limit
  • If you are not on the electoral roll
  • By having County Court Judgments against you
  • If you have changed your address frequently
  • If you are financially linked to someone who has a bad credit history
  • If you have made too many applications for credit at the same time

Check yours!

How to check your credit rating

You can check your credit rating at all three of the main credit agencies. And it is often worth checking them all as the data held by each is not necessarily the same. You have a statutory right to access your credit report for a small fee. You can ask for a written copy or do it online. Callcredit, under the brand name Noddle, also offers free access to your credit report for life. Checking your own credit report doesn’t affect your credit score, and you can check it as often as you like. If there’s an error on your file, or you disagree with something, you may want to write to the agency involved to ask them to correct it. Alternatively, you can add a notice of correction explaining the background to the error or the change in your circumstances. For example, you may wish to highlight that your finances are no longer linked following a separation or divorce.

Did you know?

Your credit rating is about YOU, not your address! So don’t worry that the financial circumstances of any previous occupiers – their financial history does not affect yours.

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