Hold on – after telling you how important it is to check your credit score, are we really going to now say there’s no such thing as a credit score? Well, yes, we are – at least, there’s no such thing as a universal credit score.
Each lender has its own set of criteria that it uses to measure borrowers against when they apply for credit. They may ‘score’ each applicant against this as a way to decide whether or not to approve their application.
However, the score you’re given by one lender won’t be the same as the one you’re given by another. They’re all looking for something different.
The same is true when you use one of the free services that lets you check your credit history. You will be given a score, but don’t be surprised if it’s completely different to the score you’re given by another service. For example, Noddle scores you out of 1,000, while ClearScore scores you out of 700.
What matters is the information each one lists about you. Once you understand the role this plays in lenders’ decision-making, you can start to improve it – and open yourself up to better deals.
How to check for free
There are three credit reference agencies in the UK – Experian, Callcredit and Equifax. You can sign up for a free trial with Experian and Equifax, or you can sign up to the lifelong free services Noddle and ClearScore, which are offered by Callcredit and Equifax respectively.
Whichever you go with, you should find the same information is included – your name, address, past addresses, anyone you share finances with and your current credit agreements. These credit agreements will date back over the last six years or so, even if you no longer use the account.
When you apply for credit, one of the ways that a lender will decide whether or not to lend to you is by looking at your credit agreements. If you currently have a fair few different channels of credit open, they may turn you down so you’re not over-burdened. And if you have no active credit agreements and have never borrowed, they may be wary of lending to you, as they can’t see how well you’ve managed credit in the past.
What most lenders want to see is that when you borrow, you never miss your repayments, never spend more than your limit and that you haven’t ever got into difficulty and ended up on a debt solution. This information is all included in your credit history.
We recommend using the free services and checking your credit history every month or so. That way you can see what your lenders see.
How does this save me money?
It sounds obvious, but most lenders want to lend to the people they believe are most likely to pay them back. They don’t want to be left out of pocket, after all.
Yes, there are some businesses that specialise in lending to people who’ve had trouble borrowing in the past, but these borrowers still present a greater risk. This means that if they’re accepted for credit, they’re likely to be charged more for it to make up for the risk the lender’s taking.
That’s why a blemish-free credit history can work in your favour. If lenders can see that you have managed to borrow responsibly and pay it back again before, they should feel confident you can do it again. So, the interest rates you’ll be offered could be lower than they would be if you had a patchy credit history.
Not only could a positive credit history help you save money, but it could also give you more choice. If you have a bad credit history, there will be fewer lenders willing to lend to you. If your credit history is spotless, you open yourself up to more lenders – and more choice.
If your credit history isn’t as good as you’d like it to be, we have plenty of tips on how to improve it. But to do this you need to take a look at your own credit history, so what are you waiting for?
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.