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.