The importance of an excellent UK credit rating in this day and age cannot be emphasized. Unfortunately, most people are oblivious about the same, and this prevents them from acquiring the money they want.
Your UK credit rating is a way for banks to know how creditworthy you are and what your credit history is. When you approach a bank for a loan, the main factor they consider before approving it is your UK credit rating. A good credit score increases your chances of getting a loan at a reasonable interest rate.
How is the UK credit rating created, and who maintains it?
UK credit ratings are created by companies called Credit Rating Agencies (CRA). The CRA analyzes and assigns a score to each individual. This score is used to show banks and other financial institutions how creditworthy you are.
A UK credit score measures the borrower’s ability to repay the debt by making timely loan repayments as well as determine the likelihood of the borrower defaulting on the loan.
While the leading CRAs have different criteria and methods for developing UK credit ratings, the idea is fundamentally the same – the higher your credit scores, the better.
The Importance of a UK Credit Report and Good Credit Score
Every CRA in the UK has a record of your entire credit history. This record is also known as a credit report. A credit report contains the following information:
- Your name and date of birth. The CRAs have this information from the day you open your account.
- A credit report also contains a ledger of all your accounts. This ledger includes bank and credit card details. If you happen to have taken any loans in the past, your payment habits and history would have been detailed in this ledger. Details like missed payment deadlines defaulting on loans usually stay on your credit report for at least six years.
- Your location of residence: Having a fixed place of residence is vital as it reflects positively on your credit report.
- Names of people who are financially dependent on your account: Married people generally have inter-connected accounts.
- Your current bank account holder details, which is typically linked to overdrafts.
Having an excellent UK credit rating is crucial, considering how a good credit score is directly related to a low-interest rate loan from banks
The Impact of UK Credit Ratings on your Interest Rate
If you plan on applying for a loan or a mortgage, a credit score can save you interest worth thousands of pounds over a period of several years. Needless to say, you ought to ensure you keep up your credit score by maintaining an excellent credit history.
A considerably high credit score is likely to lead the bank to have more confidence in you as a borrower. If you have the right credit score, banks are more likely to give you more significant sums of money as a loan at a considerably lower interest rate or lend you money at zero interest. A poor UK credit rating is likely to make the bank lend you smaller loans at higher interest rates.
When and Why should you check your UK credit rating and credit report?
It should go without saying that checking your credit report is especially vital when you are applying for a new loan or looking to buy a new car. You ought to also check your credit rating and credit report from time to time to ensure there are no mistakes or that you haven’t been wrongly charged.
There are three CRAs responsible for making their credit reports and UK credit ratings. They create these reports independently and obtain all the information for the reports from the lenders from whom you tend to borrow. This information finds itself in your credit report and your UK credit rating. Therefore, it is vital to check and update this information, especially in the following scenarios:
- If you have changed your place of residence, and have not updated on the old accounts
- If the banks have wrongly placed a default on you
- If you happen to have a joint bank account with someone no longer
- If you possess old credit cards that you no longer make use of
- if your application for a loan has been rejected
How do you check your UK Credit Rating and your Credit Report?
As per the law in the UK, all CRAs in the UK have to give you a copy of your credit report and your UK credit rating free of charge. You can access this credit report online or offline. CRAs usually give you an online form that you can use to apply.
However, if you are choosing to apply for your credit report by writing, you ought to specify a few things. Your letter must include the following details:
- Your full name
- Date of birth
- Your complete residential address, including the Pincode
- Other places of residence that you may have had over the past six years
- Other names that you may have had over the past six years
Once the CRA receives your email, it has to send you its report within one month. Sometimes, CRAs require proof of the information that you have filled up in the form. For instance, name and address proof can be verified using an old utility statement or bank statement.