Any consumer who has entered into a billing contract with another party, such as utility bills, loans or credit cards may have a credit score (also referred to as a credit rating or credit report) or rather many as there is more than one company that offers these - the leading being Equifax or Experian.

A credit score is generated using a mathematical formula and then comparison of the consumer's spending and credit history with the habits and credit histories of other consumers. The resulting figures are then converted into a score that is used by likely lenders. Lenders use this score to assess how much of a risk it is to lend money to someone. A bad credit rating will reflect a history of failed repayments on credit cards, loan schemes, outstanding bills for home utilities, missed mortgage repayments and general bad money management. A good credit score will reflect the reverse of these habits.

Somebody with a bad credit score is likely to be refused loans, finance and credit cards or, if their applications are accepted, they are likely to pay higher rates of interest than those with good scores. This is because their score alerts prospective lenders to the likelihood of them being in a higher risk category e.g. they are more likely to fail on repayments to the lenders themselves. However a credit score can be affected positively as well as negatively, even if a consumer presently has a negative credit report.

For a person to enhance their rating, it is wise for them to first and foremost find out what their rating presently is. Thanks to the 1974 Consumer Credit Act, it is now a statutory right for any person to acquire a copy of their credit score. If you are curious as to why you have recently been turned down for finance of some description, you can access your credit information directly from Equifax or Experian or one of many companies that aggregate both sets of data.

Once you have this data, you can check to ensure that all things are right and that nothing historical or erroneous is unduly influencing your credit information. Money management is the next recommended stage. A credit score can be affected positively by simply making repayments in full and on time, making sure that outstanding bills are consolidated and paid off can also have a positive effect. With every debt and bill being paid off, the score is slowly reversed, until it can develop into a good one.

In the absence of accessible loans or credit to make it easier for them consolidate their debts, many individuals with unfavourable credit scores turn to credit cards that might be offered to high-risk clients, by many banks. This should be a usable system, but then only if it is operated properly and not allowed to deepen the spiral of arrears. It is better for them to be used as a means of support over short periods of time, with the following repayments being made in full so as to avoid incurring any unnecessary interest.

Stability is additionally a component that can positively influence your credit rating. Home owners are mostly favoured over tenants and those who are employed are favoured; typically scored higher than the self-employed. Credit card debt is thought to be very bad debt and as such is worth keeping to a minimum where possible.

* Example repayments based on a loan of £8000 paid over 3 years without PPI

Article Added Thursday, 20 September 2007 | 1892 Hits

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