Credit can definitely be described as a financial minefield.
With relatively little education given to young people in the UK about building a credit score and obtaining credit, as well as how early mistakes can affect your credit rating in later life, learning a little more about credit should be something everyone considers.
You’ll need credit for most things in life, be it securing a mobile phone on a pay monthly tariff, all the way up to securing a mortgage. It’s important to keep your credit at a good level for this, although that is easier said than done.
In this article, we look to answer some frequently asked questions regarding credit.
A credit rating is the score that potential lenders such as banks, or finance companies, use to assess the likelihood that you can comfortably afford to manage any new borrowing. This score is calculated from a number of factors, made up from the information that is available to lenders.
This calculation gives the lenders indication of the chances you’ll be able to repay anything that you borrow. No one wants to lend money that they won't get back. In short, the better your credit rating, the better the chances of securing credit and at a better rate. Your credit score is made up of all of the information available to the lender, be a bank or private finance company.
This information is usually made up of details of previous borrowing, which is known as your credit history or credit report, any information you supply in the application as well as any past information they may have collated on you as an existing customer. It is not affected by menial factors such as race, gender or religion.
This limit is the agreed level of borrowing, meaning it’s going to cause a decrease in your credit rating if you exceed this limit without permission from the lender.The agreed credit limit tends to be based on your credit score, and follows the pattern of a better credit score resulting in a larger credit limit.
With credit, everything seems to be interlinked, so it’s important to find the correct card or borrowing scheme to fit your needs.
Your credit limit can be defined as ‘the maximum amount of credit a lender will offer to a debtor for a particular line of credit e.g. a credit card at £1500’.
The length of the approval process depends on the type of credit that you are applying for. With many credit card companies offering an online application process now, they can approve you instantly, or usually within 24-48 hours.
The approval process tends to be quicker if you are an existing customer, for example, if you have an active bank account with the same lender. If however, you’re applying for masses of credit in the form of a mortgage, the approval process tends to be a little longer.
For what ever reason you've some how acquired a mark on your credit rating, but now you need to apply for a loan. Many people don't realise that loans for bad credit are available to almost anyone and can be your saving grace.You may need to cope with a higher interest rate, but if you pay off the loan quickly, this will also look good to any future lenders.
CardsIt really is staggering the amount of credit cards there are in today's society. There are more credit cards in the UK then there are people.A credit card is generally the first type of lending that people become familiar with.Unfortunately many young people fall into bad habits with their credit cards, which affects them later on in life.If this has happened to you and you now need to obtain a credit card then there is still hope. Some specific lenders provide credit cards for bad credit and can help you get back on your feet.
• Car Finance
Another very popular form of borrowing is for car finance. Again this is something that many young people do to buy their first car, which is very exciting.If you're looking to get some car finance and you have any type of mark against your credit rating, then you will want to read more about bad credit car finance.
If you've saved up enough money for a deposit on a home, then this is a very exciting time for you. If you've defaulted on any type on credit in the past, then it's likely any home loan lender will see this mark against your credit score.This can stay with you for ever. The home loan lenders will scrutinize your bad credit score more than any other type of credit lender.There is good news still and your dream of owning your own home can still come true. Some lenders provide bad credit mortgages to cater for the many people in this situation.
Even with the amount of people shopping on the Internet these days, it's still surprising how many are shopping at home through shopping catalogues.This can be a favourite past time for many people and actually quite addictive.If this is new to you and you'd like to buy something via a shopping catalogue you'll need to make sure you have a good credit rating or select catalogues for bad credit.
• Mobile Phone Contracts
Almost everyone has a mobile phone or even a smart phone these days. The young age of which some kids are getting their first mobile phone is shocking.People are very attached to their phones and if you've taken out a contract which means you're paying off your mobile phone handset, then you'll need a good credit rating. A credit check will be completed when you attempted to take out a new mobile contract.If you've had issues paying off mobile phones in the past, then you might find it hard to get a new phone in the future. There are some providers who offer contract phones for bad credit, so you aren't fully out of luck, but you'll need to do you research.
In comparison to ten years ago, there’s a wealth of sources that you can use to check your credit rating, and have it explained to you. Perhaps the cream of the crop when it comes to these sources is Experion.
I’m sure you recognise the name from the cartoon adverts of cartoons carrying a ludicrous amount of shopping bags and then quickly becoming miserable as they can’t afford them.
Well Experion offer a free credit check that will give you some insight into the level of borrowing you can expect, and the best places to look for it.
Checking your credit rating can help improve your credit score, as you never know what may still be open in your name. If you have open borrowing, such as a mobile phone contract still registered to an old address it can prevent new credit being awarded. With fraud at an all-time high, you can also check to see if anyone has opened up credit in your name.
When calculating your credit score, you’ll be left with a final value. This value is what lenders use to assess whether or not you’ll be given credit. The majority of credit scores fall between the values of 600 and 750, with anything over 700 generally considered as good credit management.
However, there is no magic number that means you have a good credit for, as different lenders have different criteria. One lender may score you differently depending on what you are applying for, for example obtaining a mortgage is going to be a lot harder to do than getting a credit card with a £500 limit on it.
Also, one lender may offer credit to people below a score of 700, and another may only offer for a score of 800. It’s worth assessing the options and applying to credit that you score is more directly related to.
No credit rating is fixed in stone. Where it may be hard to build a bad credit rating back up to a good level it is by no means impossible. There are some easy steps that you can take to improving your credit score today.
Firstly, you should begin by checking you credit score, and what credit you currently have. From there, you should look to close any unused cards or contracts, these are ripe for fraudulent activity, and should have been closed a long time ago! Also as the amount of debt you have can affect future lending, you should always close unused accounts.
Secondly, register to vote, and remove any address errors that may be on previous credit applications.
Lastly, space out future credit applications, rather than doing 10 in a week, spread them over a period of 6 months, and be consistent with the information provided on each. Also, listing your landline over a mobile telephone number can help as it shows stability.
Many factors affect your credit score, some of which we have listed earlier. In short, the factors are your total amount of debt, the type number and age of your accounts, public records, and the big one – number and severity of late payments.It’s worth remembering, that your age, gender, race, religion or location has no impact on your credit score whatsoever.