What affects my credit rating?

Your credit rating is incredibly important. That’s because it can directly affect how you live your life. It can determine whether you can buy a house, a new car, a new kitchen, pretty much everything you might need but can’t afford to buy outright. But what factors determine whether your credit rating is good or bad? Well, here are the answers to some of the most frequently asked questions.

What gives you a BAD credit rating?

Put simply, if you have borrowed money and failed to stick to the repayment plan, your credit rating will be adversely affected. For example, missed or late payments will remain as black marks on your credit profile for at least three years. If you have County Court Judgements (CCJs) against you, it’s even worse, and your credit rating could be very bad indeed. Importantly, CCJs remain on your credit file for up to six years, making it very difficult for you to borrow money at a good rate. If you borrow money regularly on credit cards, it’s a very good idea to keep your borrowing below 25% of the card’s limit. Borrowing above this amount could be interpreted as a sign of financial stress, indicating that you are a bad risk for lenders.

What gives you a GOOD credit rating?

Borrowing money and paying in back in accordance with the terms of financial services contracts over many years without default is the best way to build a good credit rating. Paying off credit cards and loans, as well as promptly paying your utility bills and council tax, while also avoiding CCJs and Individual Voluntary Arrangements (IVAs), will keep your credit score high. However, please beware that when you enquire about a new financial product, this can sometimes leave a mark on your credit record. Having said that, many financial service providers now distinguish between a ‘hard’ and a ‘soft’ enquiry.

Not good, not bad…

Somewhat surprisingly, the amount of money you earn has very little bearing on your credit score. Lenders are far more interested in your history of borrowing money and then repaying it than they are about your salary. Also, people who have never borrowed any money in their lives might expect to have an excellent credit rating. Not so. Again, lenders want to see a history of punctual repayments for credit to determine the level of risk to them.

How can I check my credit rating?

The three main credit score agencies are Experian, Equifax and Callcredit. You’ll most likely have to pay a relatively small fee to access your information through these. However, there are some free ways to check.

Simply use the links below to find out your score:
- Clearscore
- Credit Karma

The Compass view

David Mills from Compass said: “At Compass we’re very conscious that making enquiries about credit can leave a mark on your credit report. That’s why we take every care to make sure we perform ‘soft’ enquiries and simple ‘eligibility checks’ whenever possible. And we would never make an enquiry on a customer’s behalf without his or her express consent. Importantly, not all financial services products are available to view on price comparison websites, so if you’re having trouble finding the right credit agreement for you, then you could benefit from going through a company such as ours.”

You can find out more about personal finances and products that can help you support them, including loans and mortgages, by contacting us via phone or email now.