Credit Scores

Our lives are governed by many different factors. However, one of the most important variables involves our credit score. A poor rating can be financially crippling; essentially preventing you from obtaining loans, being approved for a mortgage or buying a new vehicle. This is why credit scores are exceedingly important if you hope to enjoy a superior level of fiscal flexibility. How do companies compile credit ratings? What are the advantages of obtaining a free credit check? Which UK organisations are involved with assessing your credit history? Let’s take a closer look at each of these questions.

It should first be mentioned that there is no such concept of a “universal” credit score in the United Kingdom. Different firms will provide slightly different ratings (we will look at this a bit later). However, your overall credit score is determined by a handful of important factors such as:

• Payment history
• Your balance-to-limit ration (balances below 30 per cent of your limit are favoured)
• The length of your credit history
• Any recent activities
• Your overall level of debt (if any)

It is thought that your payment history weighs the most heavily upon the overall score; experts claiming that it represents as high as 30 per cent of the total rating. Thus, it is important to obtain a credit check if you suspect that you have been lax in terms of keeping up your your monthly instalments.

Credit history can obviously change from time to time. However, policyholders are rarely notified. They generally discover that they have been downgraded after applying for a loan or determining if they qualify for a new credit card. The best way to avoid any unexpected surprises is to embrace a more proactive stance. It is recommended that you check your credit rating at least once every six months. This is even more critical if you are expecting a major life change such as a relocation, a marriage or a new child.

Common sense goes a long way in this sense. Always spend within your means and be certain that you are able to repay your balance at the end of every month. Some other worthwhile suggestions include:

• Using cash as opposed to a credit card (you will only be able to spend a certain
  amount at any given time).
• Cutting down on frivolities such as eating out.
• Pay all bills on time.
• Notify the company if a payment will be late.
• Keep balances as low as possible.
• If necessary, seek a debt consolidation service.

While it may take some time to improve your score, every journey begins with the first step.

There are three major firms which determine your overall credit rating and the good news is that all provide you with the ability to obtain a free credit check:

• Experian
• Equifax
• TransUnion

If you are in doubt about your current status, it is wise to consult with these websites in order to learn more about your financial situation.