Credit Ratings

What it is....

What is a credit rating?

A Credit rating is a record of how you have paid money back throughout your life. It is possibly the singularly most important piece of information you will acquire throughout your life and it will affect your ability to buy things from a DVD on Amazon to your first house. Good credit will open doors for you and bad credit will close them. Once closed these doors may taken many years to re-open and may never open fully again.


How do I get one?

You have to be 18 in order to sign a credit agreement, but even without signing up to anything your credit rating begins to be assembled as soon as you begin to receive a service before paying for it. This may include a mobile phone contract, gas, electricity or water and TV contracts such as Sky or Virgin Media. Of course you can open a bank account before you are 18 and although this is not used to build your credit rating it is likely to be one of the pieces of information agencies use when the process eventually begins. It is therefore well worth running your account responsibly as big brother will be watching!


How is it calculated?

There are three main ratings agencies in the UK; Experian, Equifax and Callcredit. Each of then use a slightly different method to calculate your credit rating but roughly

  • 35% of your score is based on payment history
  • 30% of your score is based on outstanding debt
  • 15% of your score is based on the length of credit history
  • 10% of your score is based on recent enquiries on your credit report
  • 10% of your score is based on the types of credit in use.

As you can see from this, when the agencies begin to give you your first credit rating they don’t have an awful lot to go on. That’s why it’s important that you have a well run bank account in place. After that, everything you do in your financial life is scrutinised and has a direct effect on your credit rating.

The highest ‘points’ score that you can get is 999

We have included a wizelink to a credit score calculator which you can play around with to see how scores are effected by different circumstances. Credit Score Calculator.


Who looks at your rating?

The list is pretty daunting.

  • Banks
  • Employers
  • TV companies (Sky & Virgin)
  • Telephone companies (land line and mobile)
  • Mortgage lenders
  • Credit card companies
  • Loan companies
  • Colleges and independent schools

All of them have access to a lot more information than you might think!

When you apply to any of them they will know:

  • Whatever is on the application form
  • Past dealings with that company
  • Credit agency files
    • Electoral role
    • Court records
    • Search data
    • Fraud data
  • Payday loan data (such as wonga.com)
  • History with some phone/TV/energy companies

That’s quite a lot but here’s......

What they won’t know about you.

  • Race, religion or colour
  • Salary
  • Savings
  • History of parking or driving fines
  • Whether you have checked your file
  • Medical history
  • Criminal record
  • Child support agency information
  • Relatives (unless you have a joint account with one)
  • Student Loans
  • Declined applications

Benefits of a good rating

There are three main benefits from having a good credit rating

  • You will be able to get loans and credit to pay for goods easily
  • You will be able to get all of the services that you want when you want them
  • Interest rates are cheaper for those people with a good credit rating than they are for people with a bad one

Best way to build a good rating

  • Open a bank account as soon as you are ready, you don’t have to wait until you are 18. Although the agencies can’t use this directly in your rating it is probably the first piece of information that they have on you.
  • Get on the electoral register either at your flat or at your parent's address if you are living at home. This shows the agencies that you have a solid base and are not moving around from place to place.
  • Take out a credit card when one is offered and run it ‘perfectly’. You don’t have to take out a big limit but pay off a bit more than the minimum amount each month by the due date.
  • Put your mobile phone account in your name and don’t run up silly bills that you can’t pay off each month on your mobile phone contract.
  • Never miss a bill.

These are really simple steps that will put you in good stead with the ratings agencies and they will look at future applications in a much more favorable light than they would if you didn’t follow them. Once you are on the way to a good rating........


How can you protect it?

  • Keep up minimum payments at least on all loans and never be late.
  • Don’t put in lots of credit applications close to each other
  • Don’t default – this can take years to repair
  • Don’t break a pre-arranged limit
  • Don’t run a card up to its limit and leave it there. Not only won’t the agencies like it, it will cost a fortune in interest.
  • Get a land-line – not just a mobile phone
  • Don’t use a joint bills bank account if you flat-share. If one of the parties on the joint account defaults then it will affect you directly.
  • Cancel all unused cards and accounts
  • Use savings to pay off debt – you’ll save on interest and the agencies will love it
  • Check your credit file regularly – you are perfectly entitled to do this, the cost will be free to a few pounds, and get any errors corrected. If the agencies refuse to correct errors then add a ‘notice of correction’ onto your file. We have included a Wizelink to Experian - the largest global information services company. This will help you do this.
  • Never lie on an application form – no matter how hard you think it will be to prove

If you get into difficulties with your repayments

It may seem obvious but don’t ignore the problem. It’s not going to go away and by throwing away reminders or not answering telephone messages you are likely to make matters worse. Give your lenders a call to explain the situation. They would much sooner re-schedule your debt into something more manageable than leave you to default. They are likely to be much more sympathetic than you think. It may be worth looking at ways to consolidate all of your debts into one or two loans. Look for deals that are on the market. By moving your credit card debt to a 6 month interest free deal you may give yourself a little bit of breathing space. If you are at University you may be entitled to a hardship loan. These are not repayable and do not affect your credit rating. Finally, stop adding to the debt. Become cash based and cut up your cards. If you really can’t manage you would probably benefit from taking some advice from a debt counsellor.


Blasting the myths

  • There is no such thing as a credit blacklist. Just because you are rejected by one lender, it doesn’t mean that every lender will reject you. Lenders are driven primarily by profit and their willingness to lend to you depends on how attractive you are to them in terms of profitability. One lender might decide that he will make more money by lending to Joe Bloggs than he will by lending to you and you might then be rejected.
  • ‘Perfect customers’ who always repay all of their debt in full every month or keep switching from one 0% deal to another will not necessarily get a loan any easier than you will. Once again it all goes back to profitability for the lender. If these clients repay their debt in full they cannot be charged interest! If the customer doesn’t pay interest then the lender doesn’t make any profit!
  • Not all loan companies check your credit rating. The Student Loan Company (which is run by the government) gives loans without referring to your credit rating.
  • NEVER FILE FOR BANKRUPTCY unless it is a last resort and you have taken professional advice. It will stay on your record for up to 15 years making it impossible to get credit in any way shape or form. There is nearly always a better way.


Wize Tips

  • Open a bank account early
  • Always pay at least the minimum repayment on your credit card every month, on time
  • Never miss a payment
  • Get on the electoral register
  • Get a landline
  • Don’t hold credit cards at their maximum
  • Don’t hold too many credit cards
  • Never lie
  • If you are struggling – tell someone