Things You Need to Know About Your Credit Rating

by - Last Updated on May 12, 2017

The concept of a credit rating is pretty simple. Rating agencies give you a number. That number determines how good or bad a financial risk you are. And depending on that number you may or may not be able to borrow money from a bank, or do other things, such as taking out mobile phone contracts. If you’re a good financial risk (you have paid back other loans on time, you haven’t missed bill payments for phones, mortgages, etc.) then you’ll have a good credit rating and other companies will be happy to do business with you. On the other hand, a bad credit rating can mean that nobody wants to sign contracts with you or lend you cash. But there are a few things about your credit rating that you might not know, and that’s what we’re here for. Here’s the lowdown on all you need to know about your credit rating.

There is No “One” Credit Rating

Unlike in other countries, there is no one credit rating in the UK. Every company will give you a different credit rating depending on how well you match (or don’t match) their requirements for lending. If you’ve got a bad score and a history of not paying your bills then you’re unlikely to get credit from anyone, but even with a good score, there’s a chance that your request will still be denied, depending on what exactly a company looks for in its clients.

There are three major credit rating agencies in the UK (Equifax, Call Credit, and Experian), and each of these will try to sell you a service that offers to tell you your credit rating. The truth is though, that this number doesn’t really mean all that much to you, since you don’t know what a bank or mobile operator, for example, are looking for in order to lend to you. If you want a clearer idea of whether or not you’ll be accepted then there are two options.

The first is to simply apply and see what happens (though denied applications could affect your credit rating badly). The second is to use “soft search” applications. You fill in a little personal info, and these searches will tell you whether or not you would qualify for your loan or credit. This doesn’t affect your credit rating.

How to Improve Your Credit Rating

If you want to improve your credit rating, sadly there’s no one fix. But there are things that you can do to help yourself. Essentially, you want to make yourself look better and more responsible. Since you don’t know exactly what lenders are looking for, that means following a few general rules that will improve your overall appearance on an application.

  • Don’t take out cash on your credit cards (this is seen as evidence of financial irresponsibility since it’s an expensive option and people tend only to do it when they can’t get cash any other way)
  • Don’t miss payments or bills. If necessary set up direct debit so you know everything’s being paid on time (you can set the direct debit to pay only the minimum payment on things like credit cards if you want, and simply pay the extra yourself, covering the minimum is essential, however)
  • Lenders look for stability, and that can be as simple as putting a landline phone number on your application rather than just a mobile number
  • Get yourself on the electoral roll and get a bank account, as both these things show stability to lenders
  • As far as possible try to remain “personally” stable, which means sticking with the same job and same address for more than a few months at a time!
  • If you consistently get denied for credit STOP APPLYING and wait for six months, since all those denials are lowering your credit rating

Those rules are pretty general, but they should help at least a little. However, there is something else you can do to help your credit rating…

You Need to Get Credit to Get More Credit…

If you have bad credit already then not many people will want to lend to you. Similarly, if you have no credit history at all, no one will want to give you credit. That means that one of the best ways to improve your credit rating is (strangely) to get yourself a decent credit history. And that’s easier than you might think.

Apply for a credit card, there are plenty around and the best place to go first is your bank. You’ll almost certainly be offered a high-interest rate (since you’re seen as a bad credit risk) but that doesn’t matter for right now. Once you’ve got your card, set yourself a £50 a month spending limit on it and take it shopping. Now, and here’s the important part, you need to repay that £50 a month IN FULL and ON TIME each month for the next six months or so. Since you’re paying in full and on time, that high-interest rate won’t matter to you (you won’t be paying interest), and proving that you can repay your credit card will raise your credit rating. Easy, right. Be warned though, you miss a payment and you’ll be in even worse shape than when you started…

You Need to Stay On Top of Your Credit Info

Companies do use those big three credit rating agencies to evaluate you as a client, and that means that you need to know what Experian, Call Credit, and Equifax are saying about you. Mistakes DO get made, and these can affect your chances of getting credit. You should check your ratings with each of these agencies at least once a year (and before you make a big application, such as a mortgage application). Legally, you’re allowed to get a status report from each agency once a year for only £2. Official websites can make these cheap reports difficult to find (they prefer for you to sign up for more expensive and therefore profitable multiple reports), but you can find them by clicking on the links here:

If you do find a problem you’ll need to get it removed from your report. Problems are called “defaults” (since you defaulted on a payment), and if you see one on your credit report that either never happened or happened but wasn’t your fault then you’ll need to go through the process of getting a “resolution” and removing the item from your report. With Experian, you’ll need to fill out a consumer query here to start this process, Call Credit detail their complaints and resolution process (as well as how to add a “notice of correction” to explain a missed payment on your credit report) on their FAQ page, and Equifax explain their process here.

Timing IS Important

When and how often you apply for credit is important for two reasons. Firstly, as we mentioned above you don’t want to apply for too much credit all at the same time. Multiple refusals for credit affect your credit rating badly, so if you’re denied wait a while before you try again. And avoid flooding the system with applications too. If you’re looking to sign a mobile contract then don’t apply for three credit cards the week before (this could raise flags for fraud).

You’ll also need to keep in mind that certain information has a limitation on it. Defaults on your credit rating, as well as a bankruptcy filing, and CCJs (County Court Judgements for debts) have a shelf life of six years. If you’re nearing that deadline then hold off on you credit application for a while. Denials for applications to buy products on credit (like signing mobile contracts, getting new washing machine on credit, etc.) last only for a year. Again, you might want to hold off on an application if you’re getting close to that deadline.

Consistency is Also Important…

Anyone who lends money or gives credit is always on the look out for fraud, since fraud will cut into their profits. One of the red flags for “fraud scoring” is inconsistencies in applications. It’s important that you are consistent in the information that you put on any application for credit, even if those applications are with different companies. Consistent means that you use the same mobile phone number on all of them, that you use the same job title (if you haven’t been promoted!), the same name (especially for women who are married/divorced). The more consistent you are the less likely it is that your application will be flagged as a fraud, and the more likely it is that you’ll get your credit.