There are a lot of people that do worry about their credit score and want to make sure that it stays as good as possible. However, there are times when we need to borrow money and we may worry about whether it will have a negative impact. It is good to understand what credit scoring is and what you can do to improve it.
What is a Credit Score?
A credit score is not what we may imagine. It is easy to think that each of us has some sort of score which will be passed to others, such as potential lenders and they will use it to judge us. However, this is not how it works at all. In the UK, every person has a credit record. This documents activity on it such as borrowing, regular payments, mossed payments. CCJ’s and other information. The record is just a record, there is no scoring or anything else. What happens is that those looking at the record will determine whether they feel we have a good credit record or not. Some of those may have a scoring system but this will depend on the company themselves. They will also all look at slightly different things and make their judgements in different ways. This means that it is not always easy to know exactly what to do in order to improve your credit record.
How to Borrow and Retain a Good Credit Record
There are some common sense things that you do though. Avoiding borrowing may not be one of them, which could come as a surprise to some people. This is because borrowing is not seen necessary as a problem – we might be borrowing to buy a home, for example. However, it is the way that we approach it that is important. Firstly, if we get turned down by a lender and then apply to another, and then keep on trying this will look bad. Firstly, if we are turned down for one then this could put others off even before they look at your credit rating, they will therefore be more likely to turn you down. Also, if you apply for a lot in quick succession it will look like you are desperate for money, which lenders do not like.
Having a loan, can be an opportunity to show that you can be trusted. Make all of the repayments on time and you can prove that you are very capable of managing your money well. However, miss a repayment and you could be in trouble. If you miss just one, then this will be forgiven by some and some lenders may even like that as they know that if you miss repayments they will be able to charge you more in fees. However, if you miss more than a few, then this will put off all lenders as they will want to be sure that they will be able to trust you. This means that it will be very important for you to make sure that you stay really organised when it comes to organising your money. You need to be completely confident that you will be able to make the repayments on the loans and that you will be able to make them on time. If the interest rate is variable, you will also need to be sure that you will cope even if the interest rate goes up. So make sure that you check this all out really carefully before you take out the loan. Also think of some things that you could change if you find that you are finding it difficult to make those repayments.
We all have a credit record and it will show our financial history. That credit record can be looked at by other people and this is why some people will want to try to improve it.
Who Looks at my Credit Score?
It is important to be aware of who looks at your credit record first. You will find that when you apply for a financial product, particularly a loan, then you credit record will be looked at. The company will want to check to see whether they feel that you can be trusted. These companies will be companies such as lenders, insurers and possibly utility companies as well. They will look at your credit record and they will have a way to decide if they feel they are happy to trust you. You will also find that potential landlords will look at it as they will want to know if they can trust you to pay your rent. Some employers may even check it as well. You can look at it too.
When someone looks at your credit record to check to see if they are happy for you to be their customer, this will leave a trace. In other words it will show that they have been looking. This can be fine in some circumstances, for example if you have gone to a comparison website for an insurance quote each insurer will show. However, if you have applied for lots of loans, then this will not look so good. It will look like you are desperate to get some money and have therefore applied to as many companies as possible to get it. This will be frowned upon by others and they will be less likely to lend to you.
Will Improving it make a Difference?
You can make quite a big difference in some circumstances if you improve it. This is because you will be more likely to be able to borrow money, get a home or things like this. Lenders will want to see evidence that you are able to repay loans and so having a loan that you have repaid will help as will making regular repayments, such as for utility bills. You will also need to think about the fact that potential landlords will look at it and so it may make the difference between you getting a home or not. You may even find that you will not be able to get such a good utility deal and may even have to go on a prepayment meter, which is more expensive, if you do not have a good credit record.
You can therefore see, that it could make quite an impact if you work hard to improve your credit record. You will need to think about what areas it might be possible for you to improve. It can be tricky, as everyone has a different idea of what makes a good credit record and there is no standard. However, common sense can help you to do things which are likely to give a good impression. For example, you can make that you always pay everything on time and that will show that you will be able to do that if you took out a loan or needed to pay rent. You can try to repay some loans early, so that you do not have too much outstanding debt. It is also really important to make sure that the details on the credit report are correct as any mistakes could put people off, so make sure that if you get any mistakes corrected.
You may think that it does not matter as you do not need a loan or to move or anything so no one will be doing a credit check. However, you never know when you might need a loan, perhaps if you want to buy a home or remortgage, even change insurer or utility supplier it could make a big difference. So, it is important and it will make a difference even if you only make a few changes.