How To Calculate Your Credit Rating
Are you frustrated at not knowing why you were refusd credit? Find out how your credit rating is calculated here.
A credit rating is a method that a lending company assesses the potential risk of a loan applicant. It gives the company an idea of the average percentage chance of an individual paying back a loan. Typically, the more points you score, the better you are in the eyes of the lender. Here is how a standard lending company might assess a prospective applicant.
Probably the two most important factors that determine credit rating are monthly income and previous credit history. If you are unemployed you score no points. If you earn under £600 then you score one point. £600 to £850 gives you two points, £850 to £1100 gives three points and any monthly income above this gains four points. When a company looks at your income they will probably look to see if you have an overdraft. If your overdraft is over £400 you get no points, £200 to £400 gets you one point, and an overdraft of less than £200 will see you awarded with two points. Also if you have had a savings account with more than £400 in it for eighteen months you receive two points.
If you have enjoyed borrowing from a company before, and paid it back without any problems you will receive four points when being rated by that company again. If you borrowed from a different company, you would still get two points. If you have outstanding debt to any lending company, you may have extreme difficulty obtaining credit.
The next most important factor is mortgage. If you don’t have a mortgage, you don’t get any points. If you have one you get three points. This is because to get a mortgage you will have been thoroughly checked out by another lending company in order to obtain it, and you have stable roots.
The type of job you're in gives an indication to the lending company of your current earnings and your earning potential. If it is unskilled you get one point, skilled gets two points and professional earns three points. Also how long you have been in the same job is important to your credit rating, giving a good idea of job stability. Less than a year is no points, one to three years means one point, four to six years gets two points and more than six years gets three points.
Other factors involved when calculating a credit rating include age (if you are working age, add one point), marital status (if married then add one point), and number of dependents (if you have one to four children you get one point).
By using this method to assess yourself, if you score fifteen points or more then you are likely to be offered credit. These are only guideline values though and individual credit companies may offer more or less value for certain factors.
One way of improving your credit rating is by depositing a sum of around £300 in a savings account. Then get a small loan using that account, and pay it off within two months. Then close the account and do the same again with another bank. By doing this several times, because you will have paid back several loans, you will gain a better credit history, so you will be flooded with offers of credit through your letterbox. And don’t worry; it’s perfectly legal too.