The importance of a credit rating

If you’re a first time buyer or renter, it’s important to understand the role your credit rating plays when looking to buy or rent a home and why you should check it right now.

Why is a credit rating important?

A credit rating is used to assist lenders with their decision on whether or not to lend you money, how much to let you borrow and in many instances, how much interest to charge you. If you want to buy a property but you’re seen as a high risk due to your credit score, you are unlikely to be able to secure a mortgage.

If you’re looking to rent a home however, the landlord or rental agency may decide not to rent to you if they run a credit check and aren’t happy with what they see.

What affects a credit rating?

You should try to avoid high levels of current debt, as well as missed/late payments on credit card bills, personal loans and gas or electricity bills. All of these can negatively affect your credit rating and will stay on your file for six years.

Checking your credit report

You hold a legal right to see a copy of your credit report. It’s important to check your credit report to spot any possible mistakes that may have been made or if you've become a victim of fraud. Three credit reference agencies you can use to check are Equifax, Experian and Callcredit.

Improving your credit score

If you need to improve your credit score or hold no history of borrowing for lenders to see, there are some steps you can take right now that will have an effect over time:

  • Pay bills on time: make sure you make any credit card and bill payments on time. If you can’t, get in touch with the lender and try to come to an understanding or let them know you’re going to miss a payment ahead of time.
  • Join the electoral register – it can be more difficult gaining any credit if you aren't on it. To join, you can do so by post, or online.
  • Inform companies of any change in address and create new direct debits if you decide to change bank accounts.
  • Steer clear of too many credit applications – don’t try to obtain new credit cards, insurance and bank accounts in a short period of time, instead try and space them out.
  • Inform the credit reference agency immediately to correct any errors you notice on your file. You must provide the correct information with proof for it to be changed.
  • Cancel all unused credit cards – if you have credit cards that you don’t use, transfer all remaining debt from those to the ones you do use.