A credit rating is a measure of how well you manage your personal finances. It’s often known as a credit score. Most use the same points system, from 1 to 999, and each rating is based on how you’ve been dealing with debt.
If you’ve never had a debt, then, strangely, you’ll have no credit rating. It may even be harder to get finance, if you don’t have a credit history that’s being measured this way.
Why is a credit rating important?
Credit ratings give lenders an idea of what kind of borrower you will be. Are you a risk to them or not? People with a high score have managed their debt well, they’re more likely to get credit, possibly at a lower interest rate.
People with a low score are likely to have missed payments. They may even have stopped paying for something, which makes lending again to them a risk. A low score doesn’t necessarily mean you can’t get credit, but it’s likely to be at a much higher interest rate.
The three main credit reference agencies that organisations use to check your credit report are Experian, Equifax, and Callcredit. There are two kinds of score used: your Full Credit Report and your Public Credit Report.
- Your Full Credit Report can be seen by banks and some other companies, and gives a detailed record of your financial situation.
- Government agencies and organisations that search you for employment vetting or for tenant checking are only allowed to see your Public Credit Report.
As it’s less detailed, your public report might have a better score than your full report. Public Credit Reports are provided by the credit reference agencies to more companies than any other type of credit report.
How do I keep a good credit rating?
Making sure your credit rating stays at a good level is relatively easy. As long as you don’t run up too much debt and you stick to your payment schedules, your rating should be okay. It really is that simple.
However, computers are tricky things – and not everyone keeps information up to date as much as they should. Best practice is to do two things on a regular basis:
- Check your credit rating with credit referencing agencies on a regular basis (say, once a year or so). A low-cost (usually £2 and £10) report will show you all you need to know.
- Keep a close eye on the details being used on household bills, the electoral roll, mortgage companies’ and rental agencies’ databases. If they’re wrong, this could affect your rating.
What should I do if I haven’t got a credit rating?
If you have no credit rating at all, then one way to create one is to take out a small, short-term loan, and use the money borrowed to pay back the loan (you’ll need a bit extra to cover the interest).
This could then give you a better credit rating, and as long as you make every payment that should be a good score. Being on the electoral register will also improve your rating, as it shows you’re settled and have a traceable address. Make sure you keep those records up to date: when you move, check you’ve notified all of the local authorities (not just the ones that contact you pro-actively).