If you’re new to the world of credit scores or simply need a little reminder, we’re here to answer those back-to-basics questions about all things credit.
Mates talking credit scores while you’re none the wiser? Wondering how to boost your credit score but haven’t the foggiest where to begin? If you’re feeling clueless about credit, worry not. We’ve got all the answers to your questions right here.
What is a credit score?
A credit score is a three-digit number that is used by lenders to work out how reliable you are at borrowing money and whether you’re eligible for a particular product. Simply speaking, the higher the score, the more reliable you seem.
The score is calculated by the information available on your credit report. When you apply for credit, lenders use both the information from your report and information you provided on the application to create a score that represents your reliability.
Why is my credit score important?
From applying for a mortgage or a loan to spreading the cost of a new sofa, your credit score will play an important role in a) whether you’ll be accepted or not and b) the interest rate and terms you’ll be offered.
If you’ve never borrowed before, your credit score will probably be non-existent. While this isn’t necessarily a bad thing, it can be tricky to get accepted for credit when you first start applying. This is why many people build their credit score with a credit-builder card before they apply for things like a mortgage.
If you have borrowed in the past, but you’ve slipped up and made mistakes, it could also be harder for you to get accepted for credit - and the deals that are available are likely to have higher interest rates and limited perks.
Credit score, rating, history or report… what’s the difference?
You might have heard all of these terms thrown about and think they all mean the same thing. Actually, they’re all a little different. Take a look:
- Credit score - the three-digit number which reflects your reliability, based on information from your credit report
- Credit rating - a way to rank your credit score. For example, your rating could be ‘good’, ‘stable’ or ‘poor’
- Credit history - a list of all the credit accounts you’ve had for the past 6 years (like loans, mortgages or credit cards) and how you’ve managed them
- Credit report - this is where lenders will find your credit history (like we mentioned above) including any missed payments. They’ll also see personal information like your name and address, whether you’re on the electoral roll, public record information like CCJs or insolvencies, and any financial associations.
Why is my credit score different on different sites?
Wondering why you have a great credit score on one credit agency but a not-so-great score somewhere else?
This is because the three credit reference agencies (Experian, Equifax and TransUnion) have different ways of calculating your score - and they each have their own scoring criteria, too. Banks and lenders will check your credit report with at least one credit reference agency, but sometimes they can check all three.
What can lenders see on my credit report?
Before deciding if they’ll lend you any money or not, the lender will look at your credit report. On there, they’ll find an overview of your financial history, including:
1. 6 years of your credit history
Lenders will see all the credit accounts you’ve had over six years and how you’ve managed them. These could include accounts like:
- Personal loans
- Secured loans
- Credit cards
- Car Finance (like HP, PCP, PCH)
- Store Cards/ Store Credit/ Mail Orders
- Utility accounts
- Monthly phone contracts
- Any monthly payment plan
This list can include lender names, balances, monthly payment, start date, APR, term, payment history and any default amounts (including default dates).
2. Personal information
The lender will be able to see your name (including any previous names or misspellings reported), current and previous addresses over the last 6 years, your date of birth and possibly any current or past employers.
3. Public information
If any of your accounts have defaulted and lenders have taken action to recover any unpaid debts, this will flag up on your credit report. If you’ve been summoned to court to repay the debts, the country court judgement (CCJ) will appear as ‘public information’ on your credit report. Plus, any bankruptcies or tax liens will also show up here.
4. Your financial connections
Taken out a mortgage, joint loan or utilities contract with someone you know? Their credit history will appear on your credit report too.
While this won’t impact your credit score, it could change the way lenders think about you - for example, if you have a financial connection to someone who’s failed to meet their repayments, they might worry you could do the same.
5. If you’re on the electoral roll
Signing up to vote will mean your name and address will appear on your local electoral roll. This helps lenders to confirm your identity and rules out the possibility of fraud.
6. Any applications for credit
If you do a full application for credit, lenders will carry out a hard search on your credit history - this will appear on your credit report. If you only do an eligibility check (known as a ‘soft search’), however, lenders won’t be able to see this on your report.
So what actually affects my credit score?
Credit scores can often be unpredictable. Lots of things can cause your score to dip or increase, but the main factors include:
- Your payment history. If you’ve always made your payments on time and in full, your credit score should look healthy
- How much of your credit limit you’re using. If you’re nearly reaching your credit limit(s) every month, it can look like you’re too dependent on credit. Lenders like to see you use less than 30% of your total limit
- Defaults, insolvencies and CCJs. These will appear on your credit report for 6 years and can damage your credit score.
- Whether you’re on the electoral roll. This helps lenders identify you and rule out fraud. This can also be a quick way to boost your credit score
- How often you apply for credit. Too many applications within a short space of time can hurt your credit score and can be off-putting for lenders - they could think you’re in a tricky financial spot
- How long you keep your accounts open for. Lenders like to see signs of stability in the age of your accounts, like being able to manage credit over a longer period of time (when you’re being responsible, of course!)
- Any inaccurate information - wrong information (like an account you don’t recognize) can have an impact. Be sure to check your report regularly to see if everything is correct
And the things that won't affect my score?
There are things that won't affect your credit score, even if you can see them on your credit report. These include:
- Your gender
- Your age
- Education level
- Your income
- Your religion
- Your address
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By Emily Hardy