A credit score is what lenders use to check you are able to manage your debt and tells them if you are a risk or not. The difference between a good and bad score can make a big difference to your life. If you already know how to check your report that is great. The next question for you will be “what is a good score?”. It is a good question, and one without a single answer. This is because the three main credit reference agencies in the UK all score consumers differently. Each CRA states what a good score is on their websites:
If you have a good score, you can save yourself a lot of money on hefty interest rates. This is because your hard-earned credit score rating will give you access to the better rates and deals. Be it on credit cards, loans, credit agreements and mortgages. Conversely, if you have a bad credit rating, you are likely to be offered high-interest rates and worse deals. Or you may fail to qualify at all.
Put simply, when you apply to borrow money the lender will assess if you are worthy of being given finance. The lender does this because it needs to know whether you can manage your debts. Or whether you are likely to run into financial trouble or even default on the credit debt.
When deciding whether to approve your application, the lender will look at your official score report. This contains full details of your financial history. This report will be provided by one or more of the UK’s three main credit reference agencies for a fee.
This report will tell the bank, loan company or building society whether you have a mortgage. It will also inform how much you owe on cards, and if you have missed any payments. Be they cards, loans or mortgage payments. Therefore, the higher your credit score, the better your chances of being approved for the most attractive credit card deals.
As you may have realised, your credit score report is incredibly important. It helps lenders decide if they should approve or decline your application for credit and what terms they can give you. Beneficial or otherwise.
But as each lender has its own specific rating system, it will consider your application and any previous dealings they might have had with you to come up with a specific credit score. This may sound a bit sinister, but contrary to popular belief, there is not a credit score blacklist and you do not have a single credit score. If you are turned down by one lender, you could well be accepted by another.
Someone with a spotless credit score record, for example, is likely to qualify for a 0% interest credit card deal. However, if your record is blemished with unpaid debt or a country court judgement, you could be turned down or charged a higher rate of interest.
It is essential that the details held on your file are accurate. You can check your credit score file once a year by requesting a copy from all three credit score reference agencies – it is worth checking all three because there are likely to be slight differences.
The Consumer Credit Act gives you the right to obtain your full statutory credit score report at any time, at a cost of £2 per report, so the outlay should not be more than £6. If you do spot a mistake on your file, contact the relevant agency and ask for a correction, explaining why it is wrong and supplying any appropriate supporting evidence.
Your credit score is calculated by taking a number of factors into account, including:
Late Payments: If you are late or you miss a credit card payment or a loan repayment, it will show up as a bad mark on your credit score file.
Minimum Payments: You could also find that your report record is tainted if you make only the minimum payments each month, as it suggests that you are struggling to manage your debts.
IVA or Bankruptcy Proceedings: You will almost certainly have a low score if you are declared bankrupt or enter into an individual voluntary arrangement.
CCJs: Lenders are wary of borrowers who have a county court judgement against their name because these are used by lenders to claim money back in a legal procedure.
Little or no financial history: You may struggle to borrow money if you have never borrowed before, as having no credit history makes it difficult for the lender to assess your creditworthiness.
Easy access to available finance: People who borrow relatively small amounts or who prudently pay off their credit card bills in full each month are not profitable for lenders.
Access to Large Finance: Similarly, having access to large amounts of cash could worsen your scores, as there is a possibility you might draw down a lot in a short space and struggle to service their debt.
As there is no such thing as a credit blacklist or a universal credit score system, you will find there are various opportunities to improve your scores. Here are our top tips.
#1: Register on the electoral roll
One of the easiest ways of boosting your score is getting on the electoral roll. It is free to register on the About My Vote website – if you are not on it then you probably will not get credit.
#2: Demonstrate financial stability
Obviously, the best way to improve your credit score rating is to manage your debts well. Do not miss any monthly payments, stick to the payment deadline, and stay within your credit score limit.
#3: Check your credit score report annually
Review your report each year to check all the information held about you is correct. And of course, amend any errors if you spot them. This will improve your scores as well as your creditworthiness.