CreditScoreMatters.co.uk presents: A general guide to understanding credit scores
London
25.02.10
With credit becoming one of today’s most valuable commodities, there has never been a more important time for consumers to take control of their credit rating. The trouble is, many consumers do not even realise that there is such a thing as a credit rating, let alone understand how they work or that they can be improved.
CreditScoreMatters.co.uk is here to help and has provided this straightforward general guide to first understanding credit scores, and how to improve credit ratings.
1) What is a credit score?
A credit score is a value used by lenders to calculate the risk associated with lending to a particular customer. A credit score or credit rating is calculated by taking into account the entire history of a consumer’s borrowing and debt repayment. This includes credit cards, loans, overdrafts, mortgages and even bills. All of this history is taken together to calculate a consumer’s credit score, which is then used by the bank or lender to decide whether or not to lend to that consumer.
2) What is the ideal credit score?
Lenders require different credit scores for different products so there is no single value that is the best for a credit rating. Having said that, there are some common considerations when thinking about credit ratings. Credit histories of unpaid debts, County Court Judgments and so on, may put off any potential lenders as they may be less convinced that they will get their money back. On the other hand, a lack of borrowings and no real credit history may also be disadvantageous as banks and lenders have no previous behaviour on which to base their assessment.
3) What might a poor credit score mean?
Having a credit score that is less than perfect is not such an issue when cheap credit on fantastic terms is available. Unfortunately, post-recession, it is a different banking world altogether. Banks and lenders have become far stricter when deciding who to lend to, and so credit scores have become far more important in the past few years. So, consumers with lower credit ratings may find that you it more difficult to obtain advertised interest rates or credit limits (receiving higher interest rates and/or lower credit limits instead) or worse, a loan or credit card altogether. Some consumers may even be restricted to the most expensive credit at the highest rates of all, or be unable to obtain credit without securing it against their assets such as their home or car.
4) What is the first step in improving a credit rating?
The best way to start dealing with a credit rating is to begin by finding out what it is. To do this, consumers can order a copy of their credit report, complete with a credit rating or score, using the services provided by CreditScoreMatters.co.uk. This will tell the consumer his/her Callcredit credit rating, and give an indication of how much or little work is needed to improve it.
5) What other steps can be taken to improve credit ratings?
Many companies advertising online claim that they can erase a poor credit history, but it is not possible to erase a credit history. It is advisable to avoid these companies, as they often claim they may be able to help consumers, whilst in the small print avoid any responsibility to do so, and then, after extracting a large fee for looking into a consumer’s credit history, telling the consumer that there is nothing they can do in their case.
Instead of trying to erase a credit history, consumers can actually improve their score by paying off debts regularly and responsibly over time. If you have any outstanding County Court Judgments, it is best to pay these off as soon as possible, as they remain on record for life if not paid off within one month of the judgment. Consumers can also avoid making their credit rating worse by not applying for several loans or credit cards at once or in quick succession, as this is unattractive to many lenders. Finally, it is best to take care of bills too; unpaid credit card bills, even for tiny amounts, all count against a consumer’s credit score.
To view your Callcredit credit report, please visit http://www.creditscorematters.co.uk. To learn more about the Credit Score Matters membership programme, contact us at 0845 872 5624.
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