Whether you are considering a first-time loan, want the trendiest sofa for your home or want to get your hands on the hottest new wheels on the road, your credit rating has a lot to answer for. Moreover, it can open up the doors to a whole range of possibilities that seem impossible without financial aid.
When life’s events impact your finances, your credit rating can take a massive hit. With the likes of COVID, job losses and more, keeping on top of all your bills can take its toll. Whether you’re in the red or black, here are 5 things you didn’t know about your credit rating:
You have more than one
Lenders determine credit scores and ratings, and as there are so many to choose from, each of them have their own ways of calculating your credit score.
Lenders specialise in various forms of credit, from your mobile phone to furniture, mortgages, to car finance for bad credit. With that in mind, each company will consider different information when working out your score according to their criteria and the data they have access to.
Think of your credit report as your financial CV. It shows where you’ve been and some of the monetary experiences you have picked up along the way. So what may appear negative to one lender may be precisely what another company may see as a positive. So your score will inevitably vary between different lenders.
Borrowing can build a good credit score
The age-old argument of whether to have a credit card vs borrowing directly from a lender have been burning topics within the financial world for decades. When it comes to financing, borrowing is actually healthy for your credit score. What’s more, lenders are more likely to fulfil your request if they can see a track history of sensible borrowing and timely payments.
With any loan, there are a few basics to keep in mind:
- Never borrow more than you can afford to pay back
- Regular payments = happy lenders. Try and set up direct payments where you can
- Try and stick to your current bank account – avoid chopping and changing
- Register to vote at your local address
- Check your credit report at least once a month to make sure no negative factors are affecting your score
- Make sure there is nothing suspicious on your credit report – if any entry looks odd, contact your bank and/or lender to ensure that you are not the victim of fraud or identity theft
Overdrafts aren’t all they’re cracked up to be
If you have ever lived the uni lifestyle, wanted an extra safety net or simply agreed to an overdraft to appease your bank manager, you may want to rethink your agreement.
When companies check your credit history, some of your financial behaviours will raise a red flag, and an overdraft is one of them. More so, if you are using your entire overdraft to get by each month, as straightaway, a lender will assume you are in financial difficulty. After all, if you cannot manage your finances, they are hardly going to want to trust you with their borrowed funds!
Avoiding opening up new bank accounts, maxing out credit cards, applying for credit too often, and missing payments will all negatively impact your credit rating. So if you want to keep your credit score looking healthy, make sure you stick to the basics and don’t take on too many financial commitments along the way.
Misconceptions stop customers from applying
Credit score, credit reports and credit ratings are all terms that you may be familiar with but don’t fully know the ins and outs of. But, in a nutshell, they all boil down to the same thing – that financial CV we mentioned earlier.
Knowing what doesn’t affect your credit score is all part of busting the myths surrounding your borrowing journey. So we’ve whittled some of them down in our list below:
- Your past financial demeanours are in the past. If you’re worried about the mortgage or credit card repayment, you skipped 15 years ago, stop. Most of the vital information in your credit history is only relevant and kept on file from the past six years. Anything before that is ancient history.
- Your credit report is yours and yours alone. So regardless of who lives in your old home or drives your old car, it makes no difference.
- Friends and family make no difference to your credit score – only people you are financially linked to via a joint account or shared mortgage.
- Checking your credit score or report does not impact your score.
Your credit rating isn’t publicly visible
Credit ratings are a personal affair. Everything from your mortgage to what you spent last Tuesday at 5:53 pm is only relevant to you and is therefore only accessible to you or anyone who has your permission.
The information on your credit report mostly comes from your bank, building society and credit card companies that you have borrowed from within the last six years or that you currently have a repayment agreement with. Then there are your utility bills that may appear on your credit file from publicly available sources, such as the electoral register. You may also find:
- Personal details such as your name, address and date of birth at the time of the most recent electoral roll
- How much you currently owe lenders
- Late payments or missed payments on existing or past credit cards or loan accounts
- County Court Judgements (CCJ) – usually if your home has been repossessed, been declared bankrupt or moved address where you still owe money
- Individual Voluntary Agreement (IVA)
Like all things, the devil is always in the detail, with a few exceptions. For instance, your credit rating/score/report will not include the amount in your current account, any savings accounts, your salary figure, medical history, criminal record, council tax arrears or any driving fines.
Credit ratings shouldn’t put you off from applying. With a wealth of specialist lenders at your fingertips who look at all sorts of criteria, such as poor or no credit history to the self-employed and more, nothing can stop you! Where will your finance journey take you next?