What is a credit rating?

A credit rating is a system that some organisations use to judge how likely it is individuals or businesses will be given credit by a lender. The terms ‘credit rating’ and ‘credit score’ are often used interchangeably, but there can be differences. For example, your Equifax Credit Score will be specific number based on a fixed scale and reflects your recent credit history.

A credit rating could be a number or a series of letters or another system altogether and each lender will have their own method of judging whether to offer you credit or not. Equifax does not offer a credit rating, but does offer the Equifax Credit Report & Score which can help show how lenders may view your creditworthiness.

What is the difference between a credit rating, credit score and credit report?

As explained above, a credit rating can refer to a variety of systems used to judge how credit worthy a lender finds individuals, businesses or other organisations. Credit rating can also refer to the grade given to a country or its financial instruments by a Credit Rating Agency (CRA) which can range from AAA to D.

A credit score is a specific numerical value that can go up or down depending on your individual circumstances. There is no universal credit score, although you may sometimes encounter the myth that there is one. In reality, different agencies and lenders will assign you a credit score based on the data they have available, as well as their own particular scoring system and scale. This can sometimes make difficult to compare different scores as they will fluctuate depending on how they were calculated.

A credit report is a collection of data relating to your borrowing history. It includes:

  • Your personal information, for example, your name, date of birth and address
  • Your electoral roll data
  • Credit searches
  • Repayments you’ve made, including missed or late payments
  • Any defaults you may have had on payments
  • Information on you in public registers like the County Court Judgement (CCJ) Register or the Insolvency Register, if applicable

Why are credit ratings important?

Whichever tool a lender uses to evaluate your creditworthiness, whether it’s a credit rating or various types of credit score, the end goal is to try and predict how likely you are to repay your loans. A history of making repayments on time and using credit responsibly can help demonstrate that you can repay credit in the future.

As well as affecting products like loans, overdrafts and credit cards, your credit report can also influence things like getting a mortgage, getting finance for a car, how you pay for utilities like gas and electricity and buying a mobile phone on contract. Each of these situations involves a type of credit and means the lender will use a tool to determine what to offer.

Lenders may also take into account information included in your application, such as salary, or any data they have from previous transactions with you i.e. if you have used their products and services in the past.

How can you help improve your credit rating?

A good credit rating, score or report is chiefly about demonstrating a history of responsible borrowing. The way these tools or reports are used varies from lender to lender, but paying off your debts on-time and to completion is an important part of building a good credit history.

You should also ensure that any data held by credit reference agencies is accurate, for example, make sure to update the electoral register if you move house as this is used to verify your address. If you have had problems with debt in the past it may take a while to rebuild your credit history. Similarly, if you have never used credit before there will not be anything for lenders to use as evidence of your creditworthiness. If this is the case, you could consider using small amounts of credit and make regular repayments, to establish a credit history.

If you are interested in checking the details of your credit history and obtaining an indication of your creditworthiness, you can get online access with the Equifax Credit Report & Score service which is free for 30 days and £7.95 a month thereafter.

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