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
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.
All of them have access to a lot more information than you might think!
When you apply to any of them they will know:
That’s quite a lot but here’s......
What they won’t know about you.
Benefits of a good rating
There are three main benefits from having a good credit rating
Best way to build a good rating
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?
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