Understanding the Factors that Affect Your Credit Score

Credit ScoreYour credit score is a tool used by lenders when assessing any credit applications, such as a mortgage, credit card, or car finance. The number calculated reflects your financial history and represents the risk involved in lending money to the borrower.

With a higher credit rating, you are likely to be accepted to borrow larger sums at lower interest rates – and vice versa for bad credit scores. However, there is no universal rating as different credit reporting agencies calculate their own unique criteria, meaning it may differ depending on the service you use to check it.

But just what affects your credit score? Now that you understand how it works, we’ve put together this quick guide to explain the main factors that impact your rating.

History of Repayments

One of the most important factors for lenders – and something that can greatly impact your score – is your history of repayments. For example, do you always pay your bills on time? Or do you have a track record of late or missed payments?

Additionally, any bankruptcy, settlements or CCJs can harm your score – for example, a CCJ will stay on your file for six years. This could result in a lower rating and increase your risk in the eye of creditors. If you do find yourself in this situation, lenders like Ocean Finance offer bad credit loans which could help you rebuild your score.

The Amount you Owe

As well as repayment history, lenders also consider your total borrowings. This includes if you are over, on or near credit limits, as well as how much you owe overall.

Having a small balance can be better than owing nothing, as it shows creditors you can manage your borrowing. On the other hand, if you have accounts near the maximum borrowing limit, this could indicate financial instability and impact the kind of deals you can secure.

Recent and New Credit

In the long run, being accepted for new credit can be beneficial to your score – providing you repay on time and in full. However, a credit check (or hard inquiry) is required when an application is made and this leaves a temporary mark on your file.

Furthermore, if you make lots of applications within a short time, in addition to affecting your score, this could imply that you are struggling with your finances. Again, for a creditor, this could increase the risk.

Length of Credit File

Lastly, how long you have had your accounts can have an effect on your score. For example, if you have had your bank account for many years, have been at the same address for a long time, or held the same job, this can indicate stability. This can also show if you have a history of being responsible with credit and meeting repayments – both of which are vital to lenders.

Appraising Different Financial Products – Are They Really Necessary?

Financial marketFor the best part of the last decade, the UK economy has been defined by rising consumer borrowing, which has continued to drive growth while the private sector has recovered from the impact of the Great Recession.

However, the consumer credit boom may be coming to an end, with growth in loans and credit card debt having slowed to its weakest pace in more than three years.

Having fallen below 8%, consumer credit is also growing below its average price for the last 20 years, with banks and lenders clamping down on borrowing and rising interest rates deterring customers. The demand for alternative and specialist financial products continues to boom, however, but is this a fad or does it offer genuine value to customers?

The Value of a Diversified Financial Market

Interestingly, the rising demand for specialist financial products has increased as traditional lending has declined. Many experts believe that these two developments are connected, with niche and targeted loans offering greater accessibility to customers as banks continue to tighten their belts.

This highlights the underlying value of a diversified financial market, which offers flexibility to borrowers and enables them to seek out alternative lenders that view their application in a favourable light.

This taps into another primary benefit of diverse financial products, particularly those that are tailored to suit specific demographics. One lender that embodies this is Smart-pig, which is a short-term lender that has been established to provide an affordable line of credit to students.

Unlike most short-term lenders, Smart-pig does not charge late payment fees, while it also offers a 10-day grace period to allow for delays in the advancement of student finance.

With a 50% interest cap, the company also minimises the amount repayable by students, who typically have low levels of disposable income and no regular source of income.

This type of targeted loan package offers immense value to students, who can seek out a viable and transparent line of credit that has been designed to suit their unique circumstances. Most importantly, it tailors the cost of the loan to suit the applicants’ means, increasing the chances of a successful application and timely repayment in the process.

The Last Word

To some people, all financial products have been created equal, and so-called ‘alternative’ loans or credit cards represent little more than innovative marketing gimmicks.

This is far from the truth, however, as the diversification of the lending market has created a host of different products to suit variable demographics and customer needs.

In this respect, the development of different financial products is crucial to the future of the market, particularly in an age where traditional lenders are turning their back on customers.