What is a Credit Rating?

A credit rating (also known as a credit score) is a figure that is used to show lenders how well your credit report ranks against the general population - a measure of how risky you are. The score, which is based on your age, residential status, employment status and financial history, is used to help lenders decide whether to offer you a particular credit card, loan, or service. The higher your score, the lower the risk you are to lenders. Lenders will only accept those people who score over a certain level, known as the 'cut-off' score.

However, each lender generally follows a different policy for credit assessments, and applies different criteria, which means that you will not have one single credit rating or score. This also means that if you don't meet the criteria of one lender, you may still be able to get credit from other organisations. In addition, lenders may use different scoring criteria for different products, so you may get one score when applying for a personal loan, but a different score if you applied for a credit card from the same lender.

Improving Your Credit Rating

Credit ratings are calculated over a certain period of time and are based on your history of borrowing and repaying money, which means that any improvements you make to your credit score will be gradual, rather than instant. However, by carefully managing your credit, you may be able to strengthen your credit rating, which will give you more financial options and better credit offers.

  • If you're eligible to vote, make sure you're on the electoral roll at your current address; if you've recently moved, register as soon as possible with your new council. This is often an important factor when lenders decide whether or not to give you credit.
  • Your credit rating will be affected by the total value of outstanding balances on any active credit accounts, as well as the actual number of accounts with outstanding balances.
  • If you are behind in payments to any of your accounts, try to bring the account back up to date as soon as possible and then make future payments on time. Late payments are seen by lenders as a sign of potential financial difficulty.
  • Close down any credit accounts that you no longer use so that they are marked as settled on your credit report.
  • Avoid applying for several new credit accounts in a short period of time, as lenders may think that you are taking on more credit than you can afford.
  • Check your credit report regularly; this will ensure that the information used to calculate your credit rating is accurate, and that no fraudulent activity is occurring in your name.