Need to pay on instalments? What’s your credit score like?

Credit scores are exceptionally important nowadays as most of our contracts including insurance, mortgages, leasing agreements, and mobile phone plans are paid via monthly instalments. All providers assess your credit score in order to determine whether you are likely to continue paying in the long-term and whether you would be a worthy customer. 

There are four credit references agencies in the UK which calculate your score based on a number of factors- Crediva, Equifax, Experian, and TransUnion. Your credit score is usually calculated on the basis of factors such as personal information, credit history, public records, and previous requests regarding information about your financial position. 

Combined, these factors are used to generate a score that helps lenders determine whether they should extend a contract to you or not. The key to your credit score also lies in which company you use to give you a credit rating as each company gives different factors varying levels of importance. Therefore, a company that uses TransUnion may give you a different score compared to one that uses Equifax. 

In order to be able to determine which company will give you a better score, it is imperative to do your research regarding which factors you are being assessed against. 

Credit History- An Overview

Your credit history is a summary of how efficient you were in making previous payments on any contracts you have had. It includes contractual payments such as credit cards and mobiles and also includes loans and hiring agreements. Basically, it assesses three things:

  • Were you timely in making the payments
  • Did you miss any payments or refuse to pay
  • How many loans you have taken previously and how long it took you to pay them back

Your behavior in previous contractual agreements gives lenders a fair idea of how you may act in the future. However, there are also certain aspects which can negatively affect your credit score. These factors include: 

Not taking any loans in the past– This may sound positive and it isn’t necessarily negative as there is a first time for everything, but if you have no loans in the past, you have no credit history which makes it harder for lenders to assess whether you would be a good credit candidate. 

Too many loan requests– If you have too many loan requests together, they create a footprint on your credit file and show up in your credit search. If you are applying for too many loans in a short period of time and there are several searches on your file, this gives a bad impression to lenders. They may think you are raking up your liabilities and it would obviously lead them to assume you will have difficulty in paying them back. 

Payment problems in the past- If you ever previously applied for bankruptcy or have had problems in repaying debts, it will show up on your credit search. The majority of financial institutions would consider this a big factor in providing a loan to you again.

However, where there is a will, there is a way. Here is how you can improve your credit score. 

How can I make my credit score better? 

There are several ways to improve your credit score and overall image for financial institutions. Try ensuring you appear on the electoral register as that gives you credibility as a responsible citizen. Even if you have missed payments in the past, try to ensure none of your recent payments are missed. The further back your missed payments are, the better your score will be, as anyone can regain control over finances and straighten out payment patterns. 

If you think there is any incorrect information on your credit file, please consult the credit agency. You must provide sufficient proof to get the information corrected, but any inaccurate information or discrepancies can be removed. 

Overall, don’t fret because different lenders have different opinions and are likely to give you a different score. Make sure you try to maintain a good credit score as far as possible and ensure you make payments on time. Accordingly, it will be easier for you to enter contractual agreements including hire/leasing agreements for cars in the future. 

Happy score keeping! 

 

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