4 things you need to know about credit ratings
“Credit scores”. Admittedly, it's hardly a term to evoke danger, intrigue, or even the vaguest excitement. Probably not something to mention on a dating profile, either. That said, if you want to get your head around your money, you shouldn't ignore your credit score – if you want a credit card, a mortgage, a loan, mobile phone on a contract, or any number of rather necessary things, you’ll need to keep an eye on how banks and other lenders perceive you.
1. No lender sees you exactly the same way
...which means it's your job to make yourself as attractive to as many as possible.
Be clear: there is no universal credit rating attached to each person. Banks don’t look up your name and find a little number next to it. This is important to remember because it means that although one lender may refuse you, there is no reason that another automatically will do too. However, it's worth remembering that a company will see how many applications you've made and how frequently (though not whether you've been accepted or declined) and may draw conclusions from this.
Each lender is looking for something a little different in each customer, depending on what they’re lending (are you looking for a credit card, or a phone contract, for instance?). Though there will always be slight differences in what a lender sees as being in your favour or counting against you, they all are trying to establish what risk you present as a borrower and what potential profit you represent. This does mean that someone who may be 'good' with money is rejected, as the bank has nothing to gain from them. Dreadful, no?
Among other things, a bank, credit card company or other lender will be looking to see how reliable you are, whether they can sell you products in the future and what risk they have of losing the money they lend to you. This means they'll want to consider your salary (which they usually ask for), and any history of fraud, bankruptcy or missed payments. They'll also look to see what relationship they've had with you in the past: if you've been a good customer to them, there's likely a better chance they'll lend to you again.
2. If you miss payments, you'll miss out elsewhere too
Ok, ok, we're not saying a company is going to come around and destroy your possessions, but they can seriously damage your monetary reputation.
Energy and water companies, as well as internet and phone providers, tend to reserve the right to report on your payment history. Some do automatically (British Gas and Yorkshire Water) and some only let some information be known - for instance, BT, E.on, NPower and Scottish Power will all say if you've missed or defaulted on a payment. It's important to pay off all your bills if you wish to keep your credit history intact, which is where Direct Debit comes in incredibly handy.
Though there’s no credit blacklist you can end up on, if you behave in certain ways - for instance, always making late payments, having too many accounts open, making too many applications - you’re likely to have some applications denied.
3. It's definitely worth checking your credit report
Credit rating agencies let you know how a lender might typically see you – ie, what risk you represent and what is attractive about you as a borrower.
Typically, companies such as Experian and Equifax have offered this service for a monthly subscription fee (often with one month’s free trial). But if you’re not into paying – and why would you be?! – use this completely free tool from TotallyMoney.com. We’ve used it and think it’s well worth your time: there’s no monthly fee, no commitment, and you’ll get advice on how to improve your credit standing.
It's really, really worth doing because your history could have mistakes on it - especially if you live at an address where the previous tenant had bad history which has been incorrectly assigned to you. Go through the report thoroughly and correct any inaccuracy there may be - it could be these which trip you up later on when you're applying for a credit card or the like.
However, there are some things they can't see, like details of your bank account, any history of parking fines, your criminal record, race, religion and whether or not you've checked your file or not.
4. You can improve the way lenders see you
Small things make a big difference.
That's right - get a beard and your credit rating will go through the roof*.
Not to bang on about it, but the TotallyMoney credit check mentioned above has some tailored suggestion for doing everything you can to up your chances of obtaining credit. For instance, stability is vital for proving you’re a reliable customer, so if you’re not on the electoral role, they’ll suggest you sign up. These suggestions are tailored to your individual application, so with a bit of luck you’ll find yourself in the best position possible to apply for what you need.
Besides the suggestions on the page, you can make it easier for yourself by...
- Using a landline on applications. Yup, 2014 or not, nothing says 'stability' like a landline, apparently. Hey, we don't make the rules...
- Applying infrequently. If companies see you're applying regularly to lots of different places, it screams 'desperate for money.' It also screams 'the other places rejected me' - neither are good looks.
- Get rid of cards you don't use, if you have any. They're not going to help you and they're a fraud risk.
- Apply consistently. Make sure the details you jot down are all the same, to build a stable, constant profile.