Whenever you try to access a financial product – from credit to bank accounts – your potential lender/provider may want to take a look at your credit rating.

We hear this phrase – ‘credit rating’ – used all over the finance world, but what does it actually mean?

What is your credit rating?

Well, before a company gives you an answer to your application for credit/a financial product, they may check your credit rating to establish how much of a risk they would be taking if they took you on board as a customer. They’ll ask for your consent to search your credit rating/report before accessing it.

When they access your report, they’ll be able to see how you’ve managed your finances in the past. This will help them decide whether or not they’re willing to provide you with their services – and how much to charge you if they do.

Obtaining your credit report

You can request your credit report from Credit Reference Agencies (the companies responsible for maintaining people’s credit reports). This can help you discover why you may have been refused credit (if you have), and make sure all the information listed in your report is accurate. There are three main Credit Reference Agencies in the UK – Call Credit, Equifax and Experian – and you can normally obtain your report from any one (or all) of these for £2 each.

Improving your credit rating

If your credit rating isn’t as good as you expected it to be/need it to be, or even as good as it could be (perhaps because of debts you’ve had in the past), there may be several ways you could improve it.

Alternatively, if you’re worried about how your current debts might affect your credit rating, you could read some information on credit ratings and how to deal with creditors here.

In general, to improve your credit rating, you should try to:

• Register on the Electoral Roll – helping lenders can confirm your identity and address.

• Open a bank account – because potential lenders are likely to prefer dealing with people with ‘proven’ experience of managing their finances.

• Don’t ‘over-apply’ for credit – if you’re turned down when applying for credit, don’t just apply for a range of other options. If lenders see you’ve made several applications within a short space of time, they may think that no-one wants to lend to you and that you’re desperate for money.

• Don’t move house too often – although this may seem unfair, some lenders may not lend to you if you’ve moved house regularly in recent years. You’ll get more ‘points’ on your credit score if you’ve lived at the same address for more than 3 years. Of course, if you’re thinking about moving, this isn’t likely to be the main consideration!

• Stay in employment – again, it may seem unfair, but if you’re always moving jobs, lenders may be reluctant to offer you their money. So – stay in your job for as long as you can (without hindering your career chances, of course… sometimes you may have to move on to get a better job!).