Credit Rating Explained by Professionals
How much do you know about your credit rating? Below we have a closer look at your credit rating.
If you are currently applying for a mortgage, credit card or any other type of loan you may be finding that a poor credit rating is holding you back. There is a variety of reasons why your credit rating may be low and therefore negatively affecting your credit applications.
Credit Rating – Explained
A credit rating is way of lenders estimating how much risk there is involved in lending a person an amount of money in terms of how likely they are to pay the money back. The credit rating helps to determine the amount of money which the lender is prepared to lend and also influences how much interest rate the person will have to pay on the loan. Essentially, a credit rating provides the lender with a means of evaluating a person’s financial past to determine whether or not to lend this person money. The lenders need to make sure you are worth the risk of lending you the money, they will look at your reasons for applying for the loan and assess your current financial outgoings and income. The credit rating is therefore an important factor when applying for a loan, credit card or mortgage as a poor credit rating will affect your ability to borrow money.
Credit Rating – Poor Credit Rating
There are a variety of reasons for having a poor credit rating. These may include:
You may have a poor credit rating because you have a bad credit history, this may be due to CCJs, bankruptcy or mortgage defaults
You may have previously had problems re-paying your debts and although you have improved your credit re-payments your credit rating records do not yet testify this
As many credit lenders prefer people to be involved in a regular 9 – 5 job, which guarantees them a defined income, many people may find themselves with a bad credit rating due to an unconventional method of earning an income. This may mean that normal credit rating techniques show your financial situation in an unfavourable light.
Credit Rating – Advice
If you have a history of poor credit rating it is important to remember that applying to lenders who are unlikely to lend you money will only increase your poor credit rating. This is because every time you are rejected by a lender, a note will be made within your credit rating which will show that you have applied for a loan. The more often you have applied the less likely other lenders are to take you on. Generally lenders take the attitude that if you are unlikely to be rejected by other lenders without just cause and are therefore unlikely to want to lend to you.
