What Are The Factors That Affect The UK Credit Rating?

Credit Rating

UK Credit Rating is a term that seems to come up quite often. A good credit rating is essential, now more than ever, to apply for the loan you desire.

However, the problem is that most people don’t know how to improve their credit ratings, which prevents them from acquiring the money they need to finance their dreams. In this article, we will let you know the factors that affect your UK credit rating. Let us get started one by one.

Factors that affect UK credit rating

1. Late Payments

When you take a loan, you ought to ensure you make monthly loan repayments. Loan repayments play a big role in ensuring a good UK credit rating. CRAs use this history to see if you have been a responsible borrower.

If your track record suggests that you are one, you can expect a positive reflection on your UK credit rating. However, even a single late payment can damage your credit rating. This is why you should make your loan payments immediately after you get your paycheck. This reduces the chances of missing the deadline.

2. Defaulting on Loans

Defaulting on a loan is a red flag. CRAs tend to keep a critical eye on things like this, and your UK credit rating is prone to significant damage. Difficult situations like bankruptcy, foreclosure, and repossession of your home can have a massive effect on your credit rating.

If you were to default on a loan, you would have to undergo the ordeal of building up your credit rating. This takes a lot of time, and it also means that you will not get the loan you require in the meantime. 

3. Having too much Credit Card debt: 

Credit cards allow you to make purchases when you do not have cash in hand. These purchases can usually be made on meager interest rates so long as you make the payments on time. However, having multiple credit cards increases your risk of not clearing your debts on time. CRAs factor this into your UK Credit rating. 

4. Having Inactive accounts with Residual balances 

Having accounts that you no longer use anymore is not a bad thing. However, CRAs do not know this. If there are any balances or dues left in your old accounts, CRAs have access to this information. When compiling your final UK credit rating, all of this is taken into account.  

5. Performing multiple credit checks

Every time that you perform a credit check, your UK credit rating gets damaged. A credit check is performed on your account every time you apply for a new loan. This inquiry results in a reduction of up to 10% of your credit rating.

In addition to this, the more applications you place, the more desperate for a loan you will seem. Banks will come to the conclusion that you are in a dire need of money and will think twice before they offer you a good loan.

6. Credit Utilization

Credit utilization is a term used to refer to how much of your credit limit you use each month. Banks and other lenders look at people with lower credit utilization as lower-risk investments. Thus when CRAs create your UK credit rating, they tend to reward you with a relatively better credit rating if you keep your credit utilization to the minimum. 

7. Having a Permanent place of Residence

Where you stay has a significant impact on your UK credit rating. Having a fixed place of residence gives banks the sense that you have a stable life. Having to constantly move from one place to another creates a poor impression and CRAs consider this while compiling your UK Credit Rating.

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