Credit rating is basically the same as credit score. Its value ranges from 1 to 1000 which tells lenders how safe or risky it is to lend you money. It decides many things. For example, the type of financial product you can access and the interest rates that apply on them.
There are employers who take credit history into consideration when they interview candidates for a job. This is a particularly common practice in the financial services industry. There are several credit reference agencies which record credit ratings.
The score is determined on the basis of your credit history which includes financial details of the loans you may have taken out in the past, whether there were any loan defaults, your employment history, credit enquiries and other such relevant details from the past six years of your life.
Why Is Credit Score Useful?
Most lenders make use of credit score to determine whether or not they should approve an applicant’s loan application. There are also some banks which take the credit score into consideration before opening a bank account.
From home loans to personal loans the credit score is a major factor that lenders take into account before giving them credit of any type. The credit score gives them an idea about the applicant’s ability to pay back the loan.
How to Find your Credit Score in the UK?
The three main credit reference agencies in the UK are Experian, Callcredit and Equifax. You can get your credit score by getting in touch with any of these credit rating agencies. These agencies give you a free credit report upon signing up. You may also be entitled to get a free report each year.
However, a fee must be paid if you wish to receive credit reports more often. For advanced services such as fraud protection, credit score monitoring, etc. It is important to remember that your credit score may vary as different agencies take different records into consideration to determine your credit score.
What Qualifies as a Good Credit Score?
The definition of a good credit score or rating varies from one lender to the other. But those with higher credit scores are more likely to receive credit and better interest rates. It is also common for lenders to assign their own score to borrowers on the basis of their credit history.
Borrowers that have a higher credit score are considered to be low risk in the eyes of a lender. A higher credit score indicates that the borrower is more likely to pay back the loan. Those with a good credit score are usually those who have healthy financial practices. Another healthy financial practice which is not commonly adopted is writing a Will. Despite the common availability of free Will templates, nearly 50 percent of Britons have not written their Will.
How is it Calculated?
Credit rating agencies do not obtain information from borrowers. The information they need is provided to them by retailers, banks, credit card companies etc. The type of information that creditors receive from these institutions includes who are the debtors, how much debt they owe, how payments are made etc.
Failure to pay back loans, late payments, over-borrowing, exhausting spending limits etc. are some of the factors that work against the borrower. The factors which are known to have the biggest impact on your credit score include:
Ø Number of credit or bank accounts you have
Ø Available Credit
Ø Type of Accounts
Ø Length of Credit history
Ø Payment history
The Factors which are deemed to be the most influential on your credit score are the amount owed and your payment history. They account for nearly 30 percent and 35 percent respectively of your credit score followed by the type of credit which is at 15 percent approximately. The length of credit history and your new credit weigh the least at approximately 6 percent and 11 percent respectively.
Credit score according to credit rating agency
Equifax
The credit rating agency Equifax assigns a score of 0 to 600 to borrowers. A score between 0 and 278 indicates a very poor credit score while a score between 279 and 366 is considered poor. A score in the range of 367 to 419 is fair whereas a score between 420 and 466 is deemed as good. Anything above the score of 466 is an excellent credit score.
Experian
The score assigned by Experian to borrowers ranges from 0 to 1000. A very poor credit score is usually in the range of 0 to 560. A poor credit score falls in the range of 561 to 720. A credit score between 721 and 880 is considered to be fair while a credit score between 881 and 960 is good. A credit score over 960 is considered to be excellent.
By paying your debts on time and adhering to credit agreements, it is possible to get a better credit rating.