CHECK YOUR CREDIT RATING

This section contains three brief subsections:

What is credit rating?
How to improve your credit rating
Check your credit rating online

WHAT IS CREDIT RATING

Your credit rating is probably one of the most important, least understood aspects of personal finance. Credit scoring affects every major purchase in your life, from cars to holidays to houses. Good credit opens doors, bad credit closes them.

What is “Credit Rating”?

Credit rating is based on an analysis of your credit history - an evaluation your ability to manage a new debt or debts overall (sometimes known as credit score). It represents an estimate your ability to fulfill their financial commitments. A bad credit rating can affect your chances of obtaining a loan, or a mortgage, so it is important not to ruin it as a student.

When applying for credit, the information a company will use in comprising your credit rating includes:

The application form – contains details on your current salary, family size, reason for the loan, whether you’re a home owner, etc.
Past dealings with the company
Credit reference agency files – the data contained in these files comes from three sources; electoral roll information; court records; and financial data (obtained from banks and other financial institutions with details of all your payments and transactions)

However, there are some things not included on your credit report. For example, any defaults or missed payments that occurred more than six years ago will have expired as the time span of credit files is usually six years. However, most importantly, student loans are not included in your credit rating which is a major advantage for students who require credit. The only exception to this is if you have a court judgment against you for lack of payment, in which case it can be included in your credit report.

It is important that students acknowledge the importance of your credit rating and not to jeopardize it by, for example, maxing out credit cards and making late payments. Of course, it is not the end of the world if you have acquired a poor credit rating and steps can be taken to recover it.

HOW TO IMPROVE YOUR CREDIT RATING

The first step is to obtain your credit report. You can do this online for free. See the foot of the page for information on how to do this.

Get on the electoral roll. This may seem obvious and most people are registered, but it is important to make sure as you are unlikely to get any credit if you are not on the roll.

Build a good credit history. Credit scoring tries to predict your behavior and if you have no credit history you are more likely to be rejected. A good solution to this is to obtain one or two credit cards and spend a little each month and repaying it in full each month. This will prevent you from paying any interest on it and will build you a positive credit history. This tactic is also useful for those who have defaulted in the past.

Avoid late payments. Any late payments will affect your credit score and it is a habit you definitely try to avoid.

Make sure your credit report is accurate. Any errors or mistakes in the information contained in your credit report will have a massive impact on your ability to obtain credit. Even a simple error could result in repeated rejection from lenders.

Stop adding more debt. This may seem obvious and might not be an option for some unfortunate students, but by continuing to obtain more and more debt the outlook for your credit rating isn’t good.

Cancel any unused credit cards/debts/accounts. This will lower your available credit, and if they are unused it is a small sacrifice to make in attempt to improve your credit rating.

Turn over a new leaf. It is never too late to turn things around. Take control of your situation, manage all your debts efficiently and keep to a strict repayment schedule.

Consolidate your debts. This is an attractive option to consider as it puts all your debt into one simple, more manageable loan with a single monthly cost to repay. With this much more manageable amount to repay, you can improve your credit rating this way. See our section on loan consolidation to find out how to do this.

CHECK YOUR CREDIT RATING ONLINE

You can check your credit rating online by simply filling in a form. However most sites charge a fee for this, but you can take advantage of those who offer a free trial. Simply sign up to receive your free credit report and then simply cancel your subscription with no charge.

“Free Credit Reports” offers this service with a 7 day free trial period in which you will receive a “3 in 1 credit report” and “credit monitoring”. You can sign up and instantly fill in the online form (it is a shortest (and simplest) form you will find online to access your credit rating). To find out more or to obtain your free credit report, click here.