Credit ratings are something we all hear regularly spoken about in the world of personal finance – but why are they so important? And how do they impact on our ability to get the best deals on credit cards, loans and banking products?
Well, simply put, a credit rating measures your proven ability to handle credit. From the age you’re first legally able to take out credit – right up to the present day – credit agencies have a full picture of your activities and use them to provide a score to lenders, to help them make decisions when you apply for further credit products. Your report will detail every credit product you’ve ever owned – and currently own, any CCJs or bankrupties you have against your name, previous addresses and aliases and your previous payment history, including details of missed and late payments. It paints a compelling picture, which the agency will then score for the lender, placing the customer into categories of ‘viability’ for managing credit.
If this doesn’t sound all too important to you, perhaps if you aren’t a heavy user of credit cards, remember too, that credit products aren’t simply for loans or bank cards. Credit referencing is done when you take out a cellphone contract, buy utilities for your home, when you open a storecard and when you rent a home. It may also be done when you start a job, as certain roles require that you have a satisfactory past with your financial dealings. So every person will have their credit report scanned many times over their life.
For this reason, it’s imperative that you build as positive a credit record as possible. In a nutshell, a good credit reoprt means cheaper future credit. This means taking positive steps to remedy any bad history currently showing on it. Bear in mind firstly that most lenders only review the most three recent years of activity. This means you have an opportunity to improve things for future applications. Ensure that you’re on the electoral register and get a permanent residential address. This shows stability – something of great importance to lenders, who otherwise expend huge sums tracking down customers. Make sure you’re up to date on existing credit agreement payments. Set up monthly standing orders to avoid late payments. If you know you can’t make a payment, contact the lender in advance and see if they`ll negotiate. Show that you’re engaging in your finances and taking responsibility to improve them.
Close down any redundant accounts and ideally clear off cards with small remaining balances. Consolidate the credit products you have to just a small, manageable number. Again, this shows sense and good financial management. If you find an error on your credit record, contact the agency and ask that a note is put on there – this will be included as admissable ‘evidence’ to any future lender considering how credit worthy you might be and sway a decision in your favour.
When your credit rating is improved, you can also find better priced loans and credit cards on Moneysupermarket. This site details the latest best deals available to those with both good and ‘less than average’ credit. You’ll notice a considerable different in interest prices once you’ve started to fall into the ‘good credit’ category and it’s well worth entering the cost of finance APRs into an online calculator to see the impact of changing rates to your monthly repayments and overall repayment sum.