How well do you know your credit rating?

How well do you know your credit rating?

We are living in a world where people have become increasingly dependent on credit. Intertwined with this is the term ‘credit rating’, which we often hear. But what exactly does this mean?

What is a credit rating?

A credit rating can be assigned to any entity that seeks to borrow money and is ultimately the analysis of the credit risks linked to that financial entity. This can be an individual, a corporation, a state or provincial authority, or a sovereign or government and is based on the credentials and extent to which the financial statements of the entity are sound. If your borrowing or lending of money in the past has been good, then you’ll have a good credit rating. When companies or governments require a credit assessment, this is generally done by a credit rating agency.

So when we use credit, we are essentially borrowing money that needs to be owed back within a certain period of time. Conducting a survey through iCount OnePoll asking people about their credit risk gave us valid insight about the UK’s understanding of their credit rating. This discovered that a whopping 25.80% of people do not understand their credit rating at all and so we felt this was an appropriate time to give you all a helping hand. So we might have explained what a credit rating is, but there is much more to it than that – and we’re going to teach you!

Why is a credit rating important?

With an astounding 47.60% of people only understanding their credit rating ‘in some ways’ and 25.80% not really understanding it ‘at all’, this leaves only a minuscule 26.60% of people actually having some understanding of what their credit rating is all about. The location in which most people fully understood their credit rating was in the North East, where they took up 34.21% of the votes. The place in which people did not really understand their credit rating at all was the South East, where they made up for 20.57% of the votes.

Now regardless of these percentages and what they may seem to represent – our credit rating is extremely important and thus, it is important to understand it too. Your credit rating will pop up where you least expect it to – whether it’s for a credit card, a mortgage, personal loan or even just a phone hookup. If you have a poor credit rating, the likelihood is that lenders will be pretty skeptical about lending you money. As a result of this, they can incur a ‘risk premium’, where they lend the money at a higher rate than what they would lend to someone who possesses a good credit rating. But what affects our credit rating?

What affects a credit rating?

When the survey candidates were asked what they thought would have the most impact on a credit rating, a whopping 748 people answered with ‘past debts and bankruptcies’ and 641 people answered with ‘your history of credit account payments’. These are correct! Our credit rating is heavily influenced by such things like our payment history, amounts we might owe, having too many large amounts of available credit and as you can imagine declaring bankruptcy. In order to avoid a poor credit rating – you guessed it! Be sure to pay bills on time, which is what 683 people answered with in the survey. To avoid a poor credit rating is pretty straight-forward, act upon managing your money carefully, be sure to stay within credit limits and only borrow money that you’re capable of paying back.

With a good credit rating, comes good benefits. Ultimately, a good credit rating makes it much easier when you wish to buy your own property, get a job, finance a car, own utility accounts, make major purchases, borrow money or set up a credit card. A credit rating has a lot more significance than people may recognise.

For those of you who are under the 13% vote that did not know how to improve your credit rating, we’d like to think we’ve made it all a little clearer for you. Credit is fragile, so be sure to act efficiently to avoid being in a messy credit situation! Above all, a good credit history will benefit you greatly throughout your life.

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