What affects your credit rating

When you apply for a loan, the first thing that many lenders will often do is get permission from you to check your credit history. Many lenders use a credit score as a benchmark to decide whether you are right for them. This `score` is calculated by various elements from your credit history and the make up of the score they use varies by lender. Hence you may find one lender accepts you even though another may decline you.

Let`s start by explaining what a credit rating actually is. Everyone has one and it`s basically all of the information that paints a picture of your financial history, often being associated with a score. The reason we all have one is that the vast majority of lenders feed into a shared pool of data about the conduct of accounts for anyone they lend money to. The lenders (with your permission) then allow each other to view your credit history to help make a lending decision.

Key areas that will affect your rating are: your current balances on credit items and whether you`ve missed any payments on loans, cards or mortgages and what your total indebtedness is. Missed payments tend to show for 2 to 3 years, so if you have not missed any in that time frame that may help.

Being on the voters roll and having a continuous address history is also very important as this enables credit providers to see where you have been without any unknown gap periods.

As well as looking at how timely you are at paying your loans, credit or mortgages lenders also have access to records showing whether you`ve ever had to declare yourself bankrupt, have entered an Individual Voluntary arrangement or a debt management plans. Each of these have serious implications on availability of new credit for many years - as it effectively means you have been unable to keep to previous agreements. Lenders in these scenarios will often seek higher rates from you and may also require some security as collateral for the loan.

If you don`t think that your credit rating is as good as it could be, there are steps that you can take to improve it.

For instance, keep any credit cards manageable and try to avoid building multiple debts that can mount up and put you in a negative cash flow position. If you have more cards than you need and have already cleared the balances then think about cancelling some and leaving one or two that you may need. This will reduce the temptation to overspend.

Try to save for a major purchase if it can wait, if not save what you can and budget actively to make more than the minimum repayments on the debt each month.

Lenders will also look at how many requests for credit you`ve made in the recent past and whether or not you were granted a credit facility. If you`ve been turned down for several loans already, it may be best to seek some advice and have a look at your credit file before applying for any more, as a large number of unsuccessful requests will negatively affect your credit rating.

Homeowner Secured Loans 9.8% APRC. Representative example: Borrow £50,000 over 180 months. 60 months at 8.1%, £497.83 pcm fixed at 60% LTV. Then 120 months at 10.1%, £539.89 pcm variable. Total payable £94,656.60. Total cost of credit £44,656.60 (including: £795 lender fee, £985 broker fee & £42,876.60 interest). First Choice are tied to certain loan providers.

Mortgages & Remortgages 8.4% APRC. Representative Example: Borrow £120,000 over 25 years at 5.99%, £778.86 pcm fixed for 3 years at 60% LTV. Then at 8.75%, £974.86 pcm, variable for 22 years. Total payable £286,416. Total cost of credit £166,416 (including: £985 broker fee, £999 lender fee & £164,432 interest)

Unsecured Personal Loans REPRESENTATIVE 49.9% APR (VARIABLE) First Choice are tied to certain unsecured lenders.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. Security is required on immovable property.

Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk

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