Understanding Credit Scores
Your credit score can play a key role in how likely you’re able to borrow money across different types of credit. Whilst there are many things that banks and lenders will look at to see how likely you are to pay back any money they may lend you, one important check they will do is to look at your credit score.
So, what is a credit score? A credit score is a number that is used by banks and lenders to measure and assess your reliability to pay back the money you’ve borrowed, and will most likely be provided by three main credit reference agencies (CRAs) in the UK: Equifax, Experian, and TransUnion. To calculate your score, they’ll look at a number of factors in your credit report, including:
- Whether you’ve missed or made any late payments when a payment was due
- How many loans you have and how much of them you’ve paid back
- How many credit cards you hold, including any balances you’ve yet to pay back
- How much of your credit limit you’re using on any credit cards
- Whether you’re on the Electoral roll
- Any joint accounts you hold with a partner or friend
- Any serious credit issues you may have had in the past such as bankruptcy
If your report shows that you’ve managed any money borrowed responsibly and made payments on time, your score is likely to be higher. If you’ve missed payments, defaulted, or applied for a lot of credit in a short space of time, your score is likely to be lower.
A lot of different things will be taken into account on your credit report, so you may find individual factors may not make a huge difference to your overall score. Banks and lenders will then have their own rules around who they’ll accept, which may include a minimum credit score. Banks and lenders may offer customers with higher credit scores lower rates of interest, which means the cost of borrowing money will be lower than a customer offered a higher rate of interest.
It’s important to build up and maintain your credit score if you want to have access to more credit options in the future, such as taking out a new phone contract, to applying for a mortgage to buy your dream home.
If you want to check your credit report, there’s a couple ways you can go about it. Certain fees may apply to get a copy of your credit report. You can make online requests to see your report by going direct to each CRA, but you may need to create an online account to view your credit report.
Different lenders may use the credit score generated by more than one of the three CRAs to make a decision on whether to lend to you, so you may wish to get a copy of the credit report held by each agency. It’s important all information on the report is accurate, so if anything is wrong you should get in touch with the CRA directly.
