Credit rating - does it really matter?

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Is it important to pay attention to your credit rating?

In short YES!

A good credit history means that lenders are more likely to want to lend to you, will offer you better rates of interest, and may offer to lend you larger amounts.  Conversely, having a poor credit rating will limit your options for borrowing and you are likely to be charged a higher rate of interest.

The main Credit Reference Agencies, Experian, Equifax and TransUnion (formerly CallCredit), gather information about your credit history and create your credit report.  This holds basic information about you – name, DOB, address, electoral register.  Also contains credit history – bank accounts, credit cards, loans, and even some mobile contracts and utility bills

What does it show?

It shows how well credit is managed – whether repayments are made in on time, and in full, shows missed payments and late payments.  Will stay on file for at least 6 years.

It is used mainly used to help lenders to decide how much of a risk it is to lend you money.  Can also be used by employers and landlords to check basic information about your credit history.

I have had a few people asking me this question lately and in short ...........yes, they do. Improving your credit rating can actually help to save you money in the future, so it is worth taking some time to fully understand them. When you apply for credit, lenders make decisions about whether or not they want to lend to you based on three main things:

  • businessyour application, your income and your ability to pay back the money
  • previous history with the lender
  • your credit rating

All Credit Reference Agencies must allow you to check it free of charge, often done by offering a free trial, before charging up to £14.99 a month.  However, there is also a way to check completely free of charge, and without having to remember to cancel a subscription.  By going to Noddle (TransUnion)ClearScore (Equifax) and Money Saving Expert (Experian)  you can get genuine free access to your credit report.

Lenders use the information from these agencies to help them to predict what type of client you are likely to be and decide whether or not they want to lend to you. If they consider you to be a high risk client, there is a chance that they will reject your application.  However, they may decide to lend to you, but at a higher interest rate.  This will cost you more money than if you were a low risk client, who are often offered the lowest interest rates.

CAN I IMPROVE MY CREDIT RATING?

Absolutely!  It is important that you educate yourself about credit ratings and take the time a couple of times a year to check that the information on your credit file is correct.

Applying and being rejected can impact badly on your credit rating, so it is great idea to do a soft search before actually applying for credit.  A soft search will help you to identify which lenders are most likely to accept your application and can help you to compare lending costs.

Before checking your credit rating you should read this useful information from Money Saving Expert, as it shows you how to check your credit report free of charge (or even make money from doing it!)

My Your Money Sorted challenges look into credit ratings in more depth and help you to understand the impact that they can have on your finances. If you have any questions please just get please just get in touch.

Eileen x

I am Eileen Adamson, Your Money Sorted coach, working online with UK based women.   I’d love to show you how simple changes can help you to create a life that is happier, healthier and wealthier, with more money for the things you love. 

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