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A good credit rating

Those who approach the market for a mortgage, loan or credit card know the importance of a good credit score. Over the past 12 months, the approval of new mortgages has decreased by 40 percent. Trends show lenders are now choosing to minimise risk by taking in high-tier individuals with the best credit ratings.

For people looking to borrow, the first step is ordering a credit report from one of the credit reference agencies such as Experian or Equifax after spending £2.

The lenders make a score based on five factors which are: the payment history, the amount of outstanding debt, the total length of the credit history, type of credit that has been used previously; and the type of new credit requested.

Individuals not on the electoral roll face problems getting credit. Credit Reference agencies use the electoral information as one first port-of-call for information pertaining to applicants. Those who are ineligible to vote typically have to submit evidence of UK residency.

The faster the debtor pays off previous loans and other outstanding debts, the more readily they are likely to be accepted by future lenders. In relation to credit cards, the number of active cards should be decreased. Even if the person does not use the cards and does not owe any money on them, the access to available credit from such existing sources may be a limiting factor; particularly where a person has more than two cards.

If it comes to the notice of the bank that the debtor has a tendency to miss payments, then this is a very limiting issue. Even missing payments once or twice can cause the bank to count against the debtor for up to six years. As the credit history sums up to 35 percent of the credit score, this may be a crucial factor when making new applications.

However: the medical history, savings accounts, criminal record and fines do not affect the credit scoring process. If there are too many applications in a brief span of time, the rating would be adversely affected and this makes the applications less likely to succees. If the person is rejected more than once, it is necessary to check the credit report for any errors or problems.

Those who have a bad credit record or no credit record at all must note that there is no quick solution to boost the score.

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