What Is Credit Scoring And How Does It Apply To Me?
How Credit Scoring works - Credit Reference Agencies and overall credit rating explained
Credit scoring is a very common term that is often heard but majority do not give it the importance it deserves. It is very crucial and can make a significant impact in our everyday lives in many ways.
What is Credit Scoring?
Also referred to as credit rating, in simple words it can be described as the credit worthiness of an individual or an organisation to obtain credit or loan of some sort to be more specific. Credit reference agencies have certain measures in place with a vast array of information about almost every person that opens a bank account and registered to vote.
They assess your personal circumstances such as household income, expenses, and tracking residential address to name a few in order to make a judgement as in to how much of a risky client you will make as a borrower.
Who uses the information from the Credit Reference Agencies?
Any lender which can be a bank, credit card company, mortgage provider through to a payday loans company may have access to this information about you. If you notice the small prints when you apply for a loan, it will state in most loan applications that you give them consent to make enquiry with credit reference agencies to verify your circumstances.
How is credit scoring important to me?
If you want to be able to borrow money in the future from a bank or credit card company or apply for any type of loan, it is almost certain that the loan provider will make an enquiry to do a back ground check about your finances. Some people prefer to avoid borrowing and tend to abstain from it throughout their entire lives but this is a rare case. From buying a simple mobile phone on a monthly contract means that you are making a credit agreement, and internet, car financing, or buying that flat screen TV on a financed plan all involve credit checks nowadays.
Therefore, if you fall under this category and think that you will be making some kind of borrowing at some point in the future then it is highly advisable that you start building a good credit record and maintain it as sound as possible.
Therefore, if you fall under this category and think that you will be making some kind of borrowing at some point in the future then it is highly advisable that you start building a good credit record and maintain it as sound as possible.
How to enhance and preserve a good credit rating?
Although it can easily take 10 more articles like this just to cover the basics of repairing or improving your credit scoring, some important points that are a must are mentioned below:
Pay your bills on time – Try not to go past your payment due dates because missing as little as one payment may have an impact on your credit worthiness.
Do not apply for too many loans and credit cards at once – All applications may be subject to credit checks as mentioned above and they leave foot prints too! Therefore, applying for more 2 instances is regarded as treading on thin ice.
Do not go over your credit limit – If you have a credit card then it comes with a spending limit in most cases. Each time you exceed the limit, you may get charged unreasonable amounts. It also affects your credit profile.
Avoid making an overdraft on your bank account – Unless an arrangement is in place with your bank, each time you go overdrawn on your bank account then you are likely to incur unreasonable charges and it is likely to affect your credit worthiness.
