What is a credit rating?

Published on 10 July 2012 by Raffick Marday

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What is a credit rating?

A credit rating assesses the credit worthiness of an individual. Credit ratings are calculated from financial history and current assets and liabilities. Typically, a credit rating tells a lender or investor the probability of the borrower being able to pay back a loan. A higher score suggests that you will probably find it easier to borrow money or buy goods on credit and you may be offered better deals than if you have a low credit score.

What is a Credit Reference Agency?

A Credit Reference Agency is a company that collects and collates financial data and provides consumer credit information on individual borrowers. This helps lenders assess credit worthiness, the ability to pay back a loan, and can affect the interest rate applied to loans. The more loans you have successfully satisfied, the better your credit rating is likely to be.

What is credit score

A credit rating is a score based on your financial credit history, this is to help lenders offer credit profitably and responsibly. Plus you do not have a single credit rating, as each lender uses a different formula. In addition your credit score changes overtime based as your circumstances change.

Lenders calculate your credit rating (credit score) to assess that you will repay what you owe them. Lenders do this by allocating a value to items from your application and your credit report, the history of your credit accounts, such as mortgages, cards and loans and add them up to get a single number.

How to improve your credit report

There are a number of things that you can do to improve your chances of getting credit:

Ensure your credit report is accurate and up-to-date. If you disagree with anything in your credit history, contact the relevant lender and explain what the problem is and ask them to amend or remove the entry.

Lenders use the electoral roll to check that you are who you say you are and live at that address to combat identity theft. Not being registered can have an impact on your credit rating.

Don't make too many applications for credit. Every credit application you make will leave a search record on your credit report.

I have been refused credit what do I do?

Get a copy of your credit report and check to make sure that the information on there is accurate and up to date. If your credit score is low consider getting a creditbuilding prepaid card or credit building credit card, this can improve your credit rating by up to 40%.


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