What is credit rating?

cmdl

Hi all,

I did a search before posting this but didn't find an answer, but apologies if it's been answered already!

Basically I'm trying to further understand what a credit rating is, how it's affected and what it affects. My house mate told me the other day that he'd opened a credit card with no intention of using it because it would improve his credit rating - is this true? If so what are some other ways of improving it (and relating back to my first question, what benefits does improving it have?)

Thank you

ryantcb

A credit rating is what lenders look at in order to decide what /if any credit to give you. The better your credit score the more likely it is that a lender will lend you money. The credit rating is effected by your ability to manage credit. Make payments on time and it goes up. Miss payments then it goes down. Your friend with the CC but no intention of using it to build their credit rating is only half right. You need to be using that card and paying it off in full every month to improve your rating. Not using the card will have negative effects on your score. The main benefit of improving your score is so you get the best deals when it come to credit, be it a better APR or mortgage.

but remember that even though a bad credit file can be repaired your talking years to do this and even then not all the best deals are open to you.

cmdl

Thanks ryantcb,

If you use a credit card and pay it off in full each month do you have to pay interest? Or does that only begin to accumulate thereafter?

The_Cappuccino_Kid

If you pay it off in full then there is no interest to pay. Check the T&Cs for each card but your statement will tell you when payment is required.

Bear in mind that you have to pay the card off in full or you will pay interest on the whole amount. So if you have a balance of £5000 and pay off £4999.99 then you will pay interest on the entire five grand.

cmdl

The_Cappuccino_Kid wrote: »

Bear in mind that you have to pay the card off in full or you will pay interest on the whole amount. So if you have a balance of £5000 and pay off £4999.99 then you will pay interest on the entire five grand.

Wow. That's quite something!

I'll read around a bit and find out what kind of CCs are available.

nzseries1

I would like to recommend Martin's article on this very website:

Credit Rating: How it works and how to improve it
http://www.moneysavingexpert.com/loans/credit-rating-credit-score

Meadows

cmdl wrote: »

Hi all, I did a search before posting this but didn't find an answer, but apologies if it's been answered already! Basically I'm trying to further understand what a credit rating is, how it's affected and what it affects. My house mate told me the other day that he'd opened a credit card with no intention of using it because it would improve his credit rating - is this true? If so what are some other ways of improving it (and relating back to my first question, what benefits does improving it have?)
Thank you

It doesn't have to be a credit card, register with a catalogue, buy something, pay off on time and this will help you get a credit rating.

The reason you need a credit rating is in case you ever need to borrow money or take out a credit card then your credit rating shows if you are a risk or not.

cmdl

Thanks for the article nzseries1, had a read through and it's a bit clearer now. Seems a bit unfair that if you pay off all your cards and stuff on time that you can be more likely to be rejected! Guess it makes sense though.

If I've never had a credit card, am not in debt aside from my student loan, and have only one bank account does that put me in good stead in terms of credit rating?

lisyloo

If I've never had a credit card, am not in debt aside from my student loan, and have only one bank account does that put me in good stead in terms of credit rating?

No it doesn't becasue you don't have a lot of history.
It's not just the abscence of bad things (late payments) that lenders want, they want lots of good history of paying off debt on time as well.

You would be better off asking your current bank for a redit card.
It may not have great benefits or rewards but they have their internal records to go on, so are more likely to give you a card than anyone else.

cmdl

Righto. I'll ask about that at my branch then, thanks.

credit-geek

cmdl wrote: »

Hi all,

I did a search before posting this but didn't find an answer, but apologies if it's been answered already!

Basically I'm trying to further understand what a credit rating is, how it's affected and what it affects. My house mate told me the other day that he'd opened a credit card with no intention of using it because it would improve his credit rating - is this true? If so what are some other ways of improving it (and relating back to my first question, what benefits does improving it have?)

Thank you

In reference to above, your credit rating is a score allocated to you as an individual, which basically indicates how much of a risk you from a credit default perspective (i.e. if they lend to you will you pay it all back and on time). Credit Ratings can be seen by looking at your Experian's Credit Expert, Equifax and Callcredit, lenders use or multiple agencies to power lending decisions. Lenders also look at your application details, for variables not in your credit report such as your salary, employment status (self-employed, employed etc).

Improving your credit rating has the following benefits:

- More change of being accepted for a finance product
- A good credit rating means you are likely to get the best products, for example a better APR on a credit card, or a cashback credit card (card with some benefits) versus a credit builder credit card.

To improve it you need to check your credit report to ensure its contents is correct, and understand where you stand in terms of your credit worthiness by looking at your credit score, often out of a thousand...

In terms of your housemate, credit that is not used should be shut down, as this does not help your credit rating. Using a credit card regularly and always paying off the minimum required balance on time will help your credit rating, this develops a credit history and shows you are punctual with the payments for credit you currently have...to lenders who search your credit file.

As mentioned, to get credit you need credit.

To improve your credit rating, basics include always paying on time, not stretching yourself financially in terms of using all the available credit you have access to, updating your credit report (for example current address on the electoral roll). If you are rejected for credit, do not keep applying for other products, check your credit report, and ask your lender for reasons. Understanding your credit rating for example if it is fair or average, means you can talk to lenders about the most appropriate products for you, and reduce the chances of rejection...

Credit Ratings and credit reports are important as they can be checked, when you apply for a finance product such as applying for a credit card, loan, mortgage, to rent a house or even for a job application.....