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Credit rating
Your Credit Rating Matters:
The Importance of a Good Credit Score

If you are considering applying for a loan, then you may first want to ensure that your credit rating and credit score are accurate. Why? Well, your credit report will be the first place that a financial company will look when you make an application to help evaluate whether or not you will be a low-risk customer and have good credit. There are three major credit reference agencies in the UK:  Experian, Equifax, and Callcredit.  Bear in mind that it might be worthwhile checking your credit score or credit rating details with all three agencies to see where you stand.

You may not think that there will be an issue here if you have good credit.  You may, for example, make sure to pay your bills on time every single month.  However, even if you think your credit rating is squeaky-clean, it's worth checking your credit score anyway. After all, it's in your best interests to ensure that all of the information in your credit report is up-to-date and accurate.

The fact is that studies show that many credit reports contain inaccuracies that could affect your credit rating; this could even lead to the rejection of a loan application! Imagine finding out after the fact that you were rejected for a loan because of a simple human error or technical glitch that caused a poor credit score. That's why reviewing your credit score before you make an application can be a good idea.  It simply gives you the chance to have the agency change anything that may be the result of human error or technical problems.

So, before you make an application, check your credit report and credit score for the following:

Clerical errors

Sometimes credit reports contain inaccuracies that are the result of a computer glitch or a clerical error. These may include uncredited payments,
late payments, or data mixed in from somebody with a similar name. By reviewing your credit report and credit rating before the lenders do, you'll see exactly what they will see when they credit score, but you'll be able to change inaccurate information before it's too late!

The solution:  Bear in mind that it's your responsibility to notify a credit reference agency of inaccurate information that affects your good credit, credit rating, and credit score, but the effort involved can be well worth it in the long run.

Excess unused credit

Do you have credit cards in your wallet or purse that you don't use very often? Any that you never use? These cards can actually have an adverse effect on your credit rating, since lenders sometimes see too much 'revolving debt' as a negative when reviewing loan applications for good credit.

The solution: Consider reducing the number of credit and/or store cards that you hardly/never use, but that are listed as active on your credit report. If you don't use a card and have no plans to do so in the future, then close down the account. Make sure that the account appears on your credit report as 'settled' as this shows that you closed the account down. If you don't check this, then a prospective lender might assume that the card company closed the account for other reasons, which would have a negative impact on your credit rating.
A few credit cards managed well may actually improve your chances of getting a loan. However, lenders don't like cards with spending close to maximum limits, and interestingly enough, cards with lots of spare balance can be a bad thing too. You can always call a card company and ask them to lower your credit limit if you do have too much balance to spare.

Late payments

If you have slipped up in the past and have made a couple of late payments, then this may not be anything to worry about in terms of your credit score. Late payments are graded by their 'lateness' which is usually measured in months and by their frequency. As long as you haven't made a whole load of extremely late payments and can explain what happened to lenders, then they may not hold this against you. However, too many 'very late' late payments are less likely to be overlooked. You may be termed a high risk, and if you get approval for a loan, the interest rates might be higher and terms less favourable.

The solution: Be prepared to explain any late payments that affect your good credit. Also, since lenders usually look most closely at the last two years, if you've slipped up lately, make a big effort to make all relevant payments on time, every time.

Unnecessary credit searches

Did you know that each time a financial organisation runs a credit search when you apply for a product, it will show up on your credit rating or credit score? Most credit searches stay on your credit report and can affect your credit score for up to two years. Note, however, that your own activity viewing your credit report, credit score, or credit rating will not be an issue here.

The solution: Avoid over-applying for credit products and having a lot of credit searches done on your account. Too much activity can make it look like you have financial difficulties, don't have good credit, or are taking on more debt than you can repay. Of course, lenders understand that some activity may show up on your credit score or credit rating from shopping around for the best rates on a loan, for example, so they often overlook some activity within a very recent period. It may also help to make a note of this, in regards to your credit rating, when you make an application.

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