Our guest author for this blog is Adrian Brooks, he is the founder and Managing Director of Chatsbrook Vehicle & Asset Finance, he is also one of our Partner Members helping our members to Learn, Share and Develop.
Credit scores offer a fast, objective way for lenders to assess your eligibility and credit risk. Lenders combine your credit score with the information in your credit report to assess your risk as a borrower. Your credit rating builds up your financial picture which enables financial institutions to predict your future behaviour based on what you’ve done in the past. For instance, if your score is high, you seem like less of a risk; if your score is low, lenders may not be inclined to let you borrow as you present a risk. It is important to maintain a healthy credit rating as your credit score affects many aspects of life such as your mortgage, car finance, prospective jobs and your ability to start your own business. Luckily, there are a few things you can do to deter yourself from bad credit…
Setting up payment reminders may seem obvious, but one missed payment to a lender could greatly affect your credit score. Setting up direct debits means that you can make minimum payments on your credit cards without having to think twice.
Check that you are on the electoral roll. Lenders need to be sure you are who you say you are and without assurance of your address and ID, it is much harder to get accepted for credit. You can register to vote at any time on Gov.uk.
Furthermore, check addresses on old accounts. This may seem trivial, but just like the previous tip, it is important that you are able to provide evidence of your address and ID and having more than one address present on your accounts could hinder your eligibility for credit. So make sure to go through all of your active accounts and check that all the information is up to date.
Reduce the amount of debt you owe. This may be easier said than done, but it pays off. Positive debt looks good to prospective lenders as they are able to see that you settle debts. One way to achieve this is to do so with a prepaid card.
Reduce the number of credit cards you use. It is a myth that you need a lot of credit cards to build up a good credit rating. Truth be told, having many credit cards with outstanding balances can actually deter financial institutions from lending as it presents a financial risk.
Another major factor that influences your credit score is how much credit you utilise. For example, if you have a financial portfolio that indicates accounts whereby you have used a lot of credit, that presents a greater risk than someone that has not. The optimum utilisation rate is 30 per cent or lower. So even if you have not got a lot of credit cards, it is still wise to firstly not use them more than you can afford and secondly, to not max them out.
Reducing your credit limit may be beneficial. The higher your credit limit, the greater the risk for lenders. For this same reason, closing unused Credit Cards or store cards will be helpful. It could provide especially useful when applying for a mortgage or vehicle finance as lenders could assume that you have more money available than you actually do if you have many credit cards.
Finally, it’s OK to request and check your own credit report. As long as you order your credit report directly from the credit reporting agency or through another legitimate organisation, it will not impose on your credit rating. You can do this through the following three reference agencies: Experian, Equifax and TransUnion. All give you an insight into how lenders view your financial data and analyse your potential risk.
If you would like advice or guidance on your credit rating, our team would be more than happy to assist. Call 01603 733500 or email email@example.com to make contact today.