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Understanding Credit Rating

A credit rating (or credit score) is a system used by lending organisations to determine whether an individual qualifies for a particular credit card, loan, mortgage, or service. The terms “credit rating” and “credit score” are used interchangeably, but technically, they are different things.

Everyone should take some time to manage their credit rating, or at least take the first step in finding out what your credit rating currently is – there are a number of sites that can do this for you. Credit ratings aren’t just about qualifying for loans or credit cards anymore, they can also affect mobile phone contracts, car insurance, bank accounts, and more.

Credit ratings are about trying to predict your future behaviour, this isn’t easy to do if you don’t have a lot of credit history. When you apply for a financial-based product, a “credit check” is completed. This means that lenders gather together the data they have on your past finances, and attempt to predict your future financial behaviour based on your previous finances. Both a poor history and having little credit history can work against you, as it can make it more difficult for lenders to predict your behaviours.

Your credit file is a history of the last 6 years of your financial history. This includes the payment history of any bank account, loans, credit cards, phone bills, and mortgages that you may have had in the past, or currently have. One missed payment could stay on your file for the next 6 years, and each person only gets one credit file, therefore, it’s imperative that you ensure to manage and protect your personal file. Some bankruptcies on your credit history file may remain for 10 years, and unpaid tax liens can also exist for up to 10 years.

There are several actions you can take to boost and upkeep your credit rating, as well as make your file more attractive to lenders:

  • Keep up to date with your repayments
  • Register to vote at your current address
  • Close unused accounts
  • Don’t make too many applications for credit simultaneously
  • Review your report regularly

A good way to build your credit historyis by applying for, and using, a credit card. Ensure that you make your repayments on-time, and this can be an efficient way ofproving to lenders that you can stay on top of any finances you borrow, and bulks out your credit file with more information on your credit history.

You should also remember that your credit rating can vary between banks and building societies. This is because they all use different methods of calculating your score, and it’s based on their own analysis of your credit history. So although you may have gotten your score online in one place, it may be a little different somewhere else.

PiggyBank is one such short-term lender, and is authorised and regulated by the Financial Conduct Authority, they will thoroughly check your credit rating and assist you every step of your application with their company.

About Garad Maxwell