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Applying for credit is something many of us have to do at some point in our lives. It might be for a cash loan to tide us over when times are hard, to finance self-employment or for something much bigger like buying a house; but when we don’t have enough to fund an outright purchase, getting a loan of some kind can help to ease the pressure to some degree.
If you’ve applied for any credit before, you might be aware that you have a credit rating, but aren’t too sure about what it is, how it works and the role it plays in determining whether or not your loan, credit card or mortgage application is accepted. In simple terms, your credit rating is the score which you’re given that gauges whether you’re worthy of receiving credit.
Credit score criteria
Your credit rating is worked out by one of three agencies: Experian, Equifax and Credit Call. They work with the majority of lenders by processing all sorts of key data about your personal finances from which your credit worthiness is calculated, sending their results to the lender you’re with. You can check your credit score with Experian online if you’re not entirely sure what it is.
Among the things that have an impact on your credit score include personal finances, unpaid or delayed bills, multiple credit applications, multiple open bank accounts, poor financial management and frequently moving house. Should some or all of this apply to you, then there’s a strong likelihood that your credit rating will be low enough for any application to be turned down.
Becoming more credit-worthy
Improving your credit rating is an absolute necessity if you’re turned down by any lender but if you’re in a pit of financial despair, improving your credit-worthiness might seem like a near-impossible task. Fortunately, it’s easier than you may have thought to improve your credit rating. Here are a few things you might be able to do in order to make yourself more attractive to lenders:
- Pay off as much of your outstanding debts as possible. This can show lenders you’re getting on top of things
- Use a credit card. A little unorthodox, but if you manage to get one and pay it off on schedule, you can prove you’re able to handle credit responsibly.
- Live within your means. This might be hard at times, but cutting back on luxuries and refraining from spending more than you can afford will improve your credit rating at least marginally.
Many lenders have advice on how to become more credit-worthy; if anyone will know what works when trying to get a loan approved, surely it’s banks and building societies!
“Set up a regular savings account and shop around to make sure you get the best rate. Ensure that you are on the electoral roll as this can improve your credit score. Review your day-to-day spending to see if you can make any cuts to increase you’re saving, then set up a budget for essentials and stick to it,” commented a spokesperson from Yorkshire Building Society.
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This is a really important article. If you have a less than ideal credit score then it’s imperative to do whatever it takes to improve it. You will save a lot of money on mortgage interest over 15 or 30 years just with a small improvement.
I’m very thankful I kept my credit good because once I looked at getting a mortgage it made a huge difference in what interest rates were available to me. Over the life of the loan it’s saving me thousands of dollars.