Personal finance isn’t always taught at school, leaving those uninformed struggling in the deep end. However, it’s something you can pick up with the right advice. Things like building a credit score are essential life skills. This arbitrary number dictates your mortgage rates and access to loans or credit cards. The dynamic in the UK is that lenders calculate their own credit scores.
Credit reference agencies TransUnion, Equifax, and Experian hold pertinent information in your credit file: bills payment habits, presence on the electoral roll, old credit card applications if applicable, and even court records. Lenders will then refer to this to assess and score you on their own.
Read on to find out more on the complicated world of credit ratings:
Knowing the basics
Your credit score represents your likelihood to pay back your debts, based on previous patterns. Having a higher score gives you a sense of security as this will indicate the level of confidence lenders have in your ability to repay. You will likewise be able to qualify for better rates.
For those who are younger and newer to credit, a guide to building good credit by Petal Card suggests those without credit cards ask their service providers to report on-time payments to credit agencies.
These small notes add up and create a record of you as a reliable client. Furthermore, having such records on file will make the process of applying for a credit card much easier when the time comes around.
Checking where you’re at
Our post on ‘5 Things You Can Do Now to Start Getting Out of Debt’ highlighted how you should access a copy of your credit report. You can get a free report from every credit agency, as they each have their own algorithm for computation. You should never be in denial of your financial position as this is the only way you will be able to strategise and make the necessary adjustments. This will give you an idea of your debts and minimum monthly payments. You’ll be able to spot errors or fraudulent activity.
Create a financial plan which will help you visualise annual interest rates, balances you need to pay off, and meet payment requirements. It also helps you manage your debt ratio and in effect, improve your credit score.
Don’t be intimidated! Building good credit entails time and patience. Vigilance and responsibility are what will get you to your ideal position.