Credit rating – does it really matter?
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:
- your application, your income and your ability to pay back the money
- previous history with the lender
- your credit rating
In the UK there are 3 main credit reference agencies, Equifax,Experian and Callcredit who all hold information about you and your previous lending. They simply build up a picture of all your lending behaviour and then use this to predict what your behaviour is likely to be in the future.
Clearscore, in partnership with Equifax, have developed a free app which can be used on iPhone and android. They also have a website that allows you to sign up free of charge.
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. This infographic from Sainsbury’s bank has some simple and easy to understand information about credit ratings and what you can do to improve yours.
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 in touch.
I am Eileen Adamson, a Your Money, Sorted coach, working online with UK based women, helping them to develop a better relationship with money. By gaining an understanding of how their personality affects the decisions they make, I can help them to implement changes which will allow them to feel calm, positive and confident that they are in control and making good financial decisions. I can then support them to put into place simple strategies that will allow them to manage their finances effectively on a daily basis and create a stable, secure and exciting future for themselves.