Credit Rating/Scoring

What is a Credit Score?

A credit score is essentially a numerical expression (a score) 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 a 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 wholly dependant on the information in your credit report so keeping a check on 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 could be if you want a mobile phone contract,  to applying for a home imporovement loan on taking out a mortgage. 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 to the lender of how credit worthy you are.  All lenders, such as 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 would be seen as a 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.

How can you improve your Credit Score?

Unfortunately, there is no quick fix. Your Credit Score is built up over a period of time with information taken from your financial history.  Since your score is based on the information contained within your credit report keeping a good credit report is essential. To find out what impacts your credit report click here.

 

Mistakes can Happen

It is always possible that there could be 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 is more important than ever.

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