Your credit rating is often one of the most important things taken into consideration when you apply for a mortgage or any other type of lending from a bank or building society. Many people are aware that they have a credit score but are not sure how credit reports are calculated or how they can find out theirs
As your credit report can affect you purchasing a home, a new car, or even a brand new mobile phone, it’s important to familiarise yourself with yours
What is your credit rating?
Your credit rating is basically a score given to you depending on how much credit you use or apply for. It’s calculated based on your likelihood of paying back the amount you borrowed within a clearly specified period of time
If you are over 18 and have ever taken out any credit (such as a credit card, mobile phone contract, electricity contract), it’s likely you will have a credit report on file
What makes up your credit report?
Your credit report is made up of 5 key points which are calculated to give you an overall credit score. These include your previous credit performance, current level of indebtedness, the time your credit has been in use, the types of credit available to you and the pursuit of new credit
Not all of these factors are given an equal weighting – for example your previous credit performance makes up the biggest chunk of your credit rating. This is why it’s so important to keep your rating high and adopt tips and tricks to boost your score if it’s low
Your current level of debt plays the next biggest part – after all, this will be used to determine how you are currently managing your finances. If you already have a credit card on which you have fallen behind with your repayments, another provider may not be so willing to give you a new credit card or store card account
There are a number of companies who will provide you with your credit report. Experian is one example
Why is your credit report so important?
Your rating is hugely important as this is what lenders will check – with your permission – before they agree to lend to you. As your credit report makes up a snapshot of all your existing credit accounts, lenders will use this to determine your repayment record and how you generally manage your finances. This will not only enable them to make a yes or no decision regarding lending, it can also paint a picture of how much they will be willing to lend and at what interest rate
For instance if you are looking to take out a credit card, you may be given a high spending limit of say £2,000 if you have a great credit rating. On the other hand if your credit rating is poor you may have a maximum limit of say, £500
In addition, your credit report can affect your prospect of changing home. Mortgage providers are also lenders so they would have access to your credit information, in order to determine how much they could lend to you and over what term. Additionally, landlords also have permission to check these files and so it could affect your chances of renting too
Of course your credit report is also an important factor when you come to apply for more credit. For instance if you are thinking of opening a store card or account, your credit report will be checked to determine your affordability and ability to repay
Essentially, because many of us rely on credit in one form or another these days, the importance of your credit report is hugely significant. You should not overlook this and seek to find out as much as you can about yours, monitoring any changes on a regular basis. By doing this you can help to keep track of your finances, protect against ID fraud and work towards building up your credit rating if necessary
Our approach to credit reports
At The Hanley with use credit reports however, we don’t use your credit score as the way in which we make a lending decision. Instead our Underwriters will manually assess your credit report to gauge your affordability and credit risk, we believe this way is more flexible and allows us to build a much better picture of mortgage applicants
Credit reports are just one element to consider when you are looking to take out a mortgage. Take a look at our short video for more useful tips
For more information or advice on how to understand your own credit report, call us on 01782 255 000