A credit rating isa system that some organisations use to judge how likely it is individuals orbusinesses will be given credit by a lender. The terms 'credit rating'and 'creditscore' are often usedinterchangeably, but there can be differences. For example, your Equifax Credit Score willbe specificnumber based on a fixed scale and reflects your recent credit history.
A credit ratingcould be a number or a series of letters or another system altogether and each lenderwill have their own method of judging whether to offer you credit or not. Equifax does notoffer acredit rating, butdoes offer the Equifax Credit Report& Score which can help show howlenders may view your creditworthiness.
What is the difference between a credit rating,credit score and credit report?
As explained above, a credit rating canrefer to a variety of systems used to judge how credit worthy alender finds individuals, businesses or other organisations. Credit rating canalso refer to the gradegivento a country or its financial instruments by aCredit Reference Agency which can range from AAA to D.
A credit score is a specific numerical value that can go up or down depending on yourindividualcirc*mstances. There is no universal credit score, although you may sometimes encounter themyth that thereis one. In reality, different agencies and lenders will assign you a credit scorebased on thedata theyhave available, as well as their own particular scoring system and scale. This can sometimesmakeitdifficult to compare different scores as they will fluctuate depending on how they werecalculated.
A credit report isa collection of data relating to your borrowing history. It includes:
- Your personal information, for example, your name, date of birth and address
- Your electoralroll data
- Credit searches
- Repayments you’ve made, including missedor latepayments
- Any defaults you may have had on payments
- Information on you in public registers like the CountyCourt Judgement (CCJ) Registeror theInsolvencyRegister, ifapplicable
Why are credit ratings important?
Whichever tool a lender uses to evaluate yourcreditworthiness, whether it’s a credit rating orvarioustypes of credit score, the end goal is to try and predict how likely you are to repay yourloans. Ahistoryof making repayments on time and using credit responsibly can help demonstrate that you canrepay creditin the future.
As well as affecting products like loans, overdrafts and creditcards,your credit reportcan alsoinfluencethings like getting a mortgage, getting finance for a car, how you pay for utilities likegas andelectricity and buying a mobile phone on contract. Each of these situations involves a typeof creditandmeans the lender will use a tool to determine what to offer.
Lenders may also take into account information included in your application, such as salary,or any datathey have from previous transactions with you i.e. if you have used their products andservices in thepast.
How can you help improve your credit rating?
A good creditrating, score or report is chiefly about demonstrating a history of responsibleborrowing.Theway these tools or reports are used varies from lender to lender, but paying off your debtson-time andtocompletion is an important part of building a good credit history.
You should also ensure that any data held by credit referenceagencies is accurate, for example, makesureto update the electoral register if you move house as this is used to verify your address.If you havehadproblems with debt in the past it may take a while to rebuild your credithistory.Similarly, if youhaveneverused credit before there will not be anything for lenders to use as evidence of yourcreditworthiness.If this is the case, you could consider using small amounts of credit and make regularrepayments, toestablish a credithistory.
If you are interested in checking the details of your credit historyand obtaining an indication of yourcreditworthiness,youcan get online access with the service which is free for 30 days and £14.95 amonth thereafter.
