We are continually told and reminded of how important our credit history and credit scores are. And our credit score can be important, especially if you need to borrow money, and also in other areas, as some employers use credit score in hiring, and insurance companies may use credit scoring to issue insurance policies.
Credit Scores and Credit Bureaus
Credit scores are a numerical value assigned to our credit history based on a few different factors and values. This score or number is assigned by these factors by companies called credit bureaus.
The higher your credit score, the better. A low credit score is bad.
The factors used to evaluate what comprises our credit scores are:
* Payment History
* Balances on our Accounts
* How Long We Have Had Credit
* Types of Accounts We Have
* How Often We Apply For New Credit
These five (5) factors are assigned values and used to make up our credit score. The two factors that hold the most value are payment history, and the balances on our accounts.
Miss a few payments and run up large balances and your credit score can drop drastically.
Credit bureaus are companies that basically are data gatherers, and hold all the information related to our credit histories.
They take this information and our details, and credit a credit report, or credit history, which has a credit score assigned to it.
There are three (3) credit bureaus here in the UK, Equifax, Experian, and Call Credit.
There are various credit bureaus around the world, some of the credit bureaus here in the UK are also represented in other countries. This does not mean your credit history or credit score here in the UK follows you around the world.
Just as individuals we have have a credit history and a credit score, so can certain businesses, mostly in the financial sector, banks, and financial institutions. And so can countries.
Countries can be evaluated and have a “score” assigned to them based on many financial situations, economy, strength of their currency, ect. These scores are put together by credit rating agencies that specifically deal with such matters.
The UK’s Credit Rating
Recently the UK’s credit rating was downgraded by the credit rating agency Moodys.
Moodys downgraded the UK from Aa1 to Aa2. This was based on concerns over the Brexit affecting our economic growth and also the countries public finances.
The downgrade is not good, but it is also not the end of the world. It means it may cost the UK more to borrow money, similar to having a low credit score and needing to seek out a bad credit loan, and it also may make those that invest in government bonds and securities less likely to do so.
There are three (3) major credit rating agencies, and the remaining to agencies, Fitch and S&P (Standard and Poor) have also downgraded the UK’s rating.
S&P downgraded the UK from AAA to AA.
Fitch from AA+ to AA.
These 3 credit rating agencies are private companies, and are not government agencies or associated with the government(s).
And while they each have different rating standards and systems, they are basically the same using ratings such as A or A+ to as low as D for default.
What these ratings are based on is a countries economy. Strong economies get rated A or AAA or A+, slower economies will be rated lower.
Regarding the recent downgrade in the UK’s rating Moodys cited that the government had “yielded to pressure and raised spending in several areas” and named health and social care.
They also cited concerns over the Brexit and how it could take the lead in many “legislative priorities” leaving gaps in other areas requiring changes.
Moodys added regarding this “any free trade agreement will likely take years to negotiate, prolonging the current uncertainty for business“.
While the Prime Minister is attempting to address these issues related to the Brexit, it still takes time, and agreements from all parties, us here in the UK, and the EU.
It was noted also that this is the second time the UK has had their credit rating downgraded under the current government.