Understanding your credit rating

Credit scoring is, and has been, a pivotal part of lending decisions for more than two decades now.

It allows mortgage lenders and credit providers to make an unprejudiced decision on your credit-worthiness based on your current and historic financial circumstances.

So, effectively, lenders can see how good you have been at repaying your debts and how able you are currently to handle a new debt.

Most banks and building societies in the UK use Experian, Equifax or Call Credit, or a combination of any or all of these; because sometimes, certain providers or certain information may not show on one or other of these systems.

So, it is crucial for you to understand the impact your financial behaviour has on your ability to borrow money. In particular, with regard to mortgages in this case.

It’s fair to say that if you borrowed money from a friend and didn’t pay them back, paid them back late or they had to force you to go to court to pay the money back, then they – or your other friends or family – would be reluctant to lend you money, subsequently.

That is, in effect, credit scoring in layman’s terms.

When you are taking out a mortgage, a lender looks at three principles: the first being the ability to pay. This is evidenced by proof of income and bank statements, demonstrating what’s known as ‘affordability’.

The second factor is ‘security’. This being the property you intend to buy, it’s value and its saleability. This is normally proven by a lender sending their own surveyor to look at the property.

The third principle is known as ‘willingness to pay’. This is where credit scoring comes in, demonstrating to a potential creditor how good you are at paying your bills.

You need to satisfy the lender’s criteria in all three areas to secure a mortgage.

Some banks and building societies are more lenient with credit scoring than others. A good broker will point you in the right direction, should you have minor credit blemishes.

Here at Euxton, we are always happy to help with any credit enquiries you may have.

August 2019