The importance of a good credit rating

Over the last year mortgage approvals have dropped by 40%, so now, more than ever before, it is vital to have a good credit score.

The first step you should take to obtain this is to obtain your own credit report from a credit agency in order to see what any potential lender will read about you.

Lenders score on a range of 5 factors-namely the payment history, amount of any outstanding debt, length of credit history,types of credit card-both previously used and currently being sought.

Before your credit storyboard commences, it is best to be on the electoral roll. Anyone not on this will face bigger problems when trying to obtain credit, and anyone not eligible to vote will have to produce proof of residency to 3 credit agencies.

Within the 5 factors, it is important to point out that the higher the figure of outstanding debt, the worse your rating will be. With this in mind, the advice would be to pay off any existing loans as quickly as possible to put you in a more favourable light for potential future lenders.

Another interesting point to make is to cut down the actual number of credit cards we have in our name. So many of us these days have cards we have taken out at some point and no longer use, but these items are still viewed as ‘live’ or ‘active’ which all have an effect on our credit rating/score. Despite these cards not being used, andf in many cases not having any outstanding balances owed on them, the mere fact that that particular line of credit is still open plays its part shaping our credit history.

Anyone who has a tendency to miss payments is not going to portray themselves in the best way to be considered by future lenders. Even 1 or 2 missed payments could result in the bank penalising you for up to 6 years on your credit history. With credit history totaling 35% of the credit score, this could be serious indeed.

Savings accounts, medical history, criminal records and fines DO NOT have an impact on the score, however if you are a serial applicant (i.e. apply for many products in a relatively short space of time), then your rating could lower your chances of a successful application.

If you find yourself rejected on more than one occasion, it would be worthwhile to check your credit report for any inaccuracies and amend them as required.

Finally, a reminder to anyone who do not have a credit record, or who perhaps do not have a good one, it takes time to build up a good credit history and there a re no ‘quick fixes’ to be found. You need to manage your finances in a way which would not negatively affect your credit rating and build on it from there.