Credit Rating/Scoring

What is a Credit Score?

A credit score is essentially a numerical expression (a socre) which determines a person’s credit worthiness. The score is based on the statistics of a person’s credit file while the credit worthiness denotes the regularity with which he will be making his payments. The scoring is made based on credit report made by a credit bureau or credit reference agency. The agency prepares your score and places it in your credit report.

Your personal credit score is largely dependant on the information in your credit report so keep a lookout for what is listed in your credit report is vitally important.

Your credit score is your passport for credit and it will determine whether or not you will be offered a loan, credit card or mortgage.

Who uses my Credit Score and Why?

Your credit score will be used by people from whom you wish to obtain credit. This counld be in a number of ways including a home imporovement loan, a mobile phone contract, a mortgage etc. The credit score allows the lender to decide who will qualify for credit and what rates of interest or which credit limits are applicable. The system has been implemented as a guarantee of the trust the lender might place on you with the money.

Everyone, to whom you might go to borrow money like your bank, a finance company or a service provider will look at your credit score before deciding whether to grant you credit or not.

Your credit score may also be used to determine what interest rates your pay on any loans you take out. Having a lower score may be seen as higher risk for the lender and so to compensate, you will be forced to pay a higher interest rate.  Similaly, with a low credit score, a lender may restrict the amount of credit available to you.

Ho can you improve your Credit Score?

Unfortunately, there is no quick fix. You Credit Score is based on a culmination of events over a period of time. In the same sense, it takes time for changes to kick in. Since your score is based on the information contained within your credit report, keeping a good report is essential. To find out what impacts your credit report, click here.

You may have small outstanding debts that you have forgotten about and the lender has not got round to chasing up yet. A credit card which is no longer used but the account still open. These things will have an impact on your score and are sometimes the difference between being accepted or rejected.

Mistakes can Happen

It is always possible that there is a certain mistake on the credit report which is creating a low credit score for you. Errors do happen so it is important you maintain your credit report and check for mistakes frequently. What looks like a mistake on your report might actually be a case of Identity Theft, so keeping an eye on your report becomes more important thn ever.

Remember, even a small change in your credit score can have a huge effect on the loan you wish to take next time.