You’ve signed up to a credit reference agency, checked your credit score and it’s bad news. The score you’ve been given is ‘poor’.
However, before you lose hope entirely, we’re here to tell you that there is actually no such thing as a universal credit score – whatever you might have heard.
Yes, really. The belief that every person has a unique credit score hanging over their heads is a myth. In fact, the credit reference agencies don’t even use the same scoring system, so it’s practically impossible for you to be given the same score by each of them.
Noddle gives you a score out of 800, while ClearScore marks you out of 700. And the new kid on the block, CreditMatcher, scores you out of 999. The chances of you getting the exact same score with all three is pretty slim.
What about lenders?
It’s not only the credit reference agencies that each have their own scoring system – lenders do too. Every lender has its own set of criteria by which it assesses applications from borrowers. They also each use a different combination of the three main credit reference agencies to access borrowers’ credit histories.
This means that if you get turned down for credit by one lender, it doesn’t mean you’ll automatically be rejected by all of them. It all depends on what type of borrower they specialise in.
What does matter, then?
If there’s no such thing as a universal credit score, what are lenders looking for? Well, they all have their own specific search criteria, as we said, but what they will all do is take a look at your credit history.
This is a record of all the lines of credit you’ve had available to you over the last six years or so and how well you’ve managed them. If you’ve been late with or missed your repayments, this information will show up on your credit history. If you’ve ever been issued with a County Court Judgement, this will also show here.
Your credit history is used by lenders to predict whether you’ll keep up with your repayments if they lend to you. If you’ve never missed a payment in the past, they are likely to conclude you’re a responsible borrower who can be trusted. On the other hand, if your have struggled to keep up with your repayments in the past, they may worry that you’ll struggle to repay them too.
Of course other factors may be taken into account, like the type of product you’ve applied for, how much you’ve asked to borrow, your income and your other outgoings. But your credit history will almost certainly be one of the main things lenders consider when you apply to borrow from them.
But what about if I’ve never borrowed?
If you’ve never borrowed, you might assume that your credit history is blemish-free. Unfortunately, this may not be the case.
You won’t have had chance to build up a credit history if you have never borrowed before. This gives lenders nothing to look at to work out whether you’re a responsible borrower, so they may hedge their bets and turn down your application.
Is it the end of the road, then?
If you have struggled with borrowing in the past, or if you have never borrowed and so have no credit history to speak of, it’s not necessarily the end of the road for you. There are lenders who specialise in lending to people with bad credit or no credit history at all.
Once your application for credit is accepted, be certain to make your repayments on time and in full. This will not only help you build up your credit history but it also means you could avoid any of the penalty charges many lenders issue if you miss your payments.
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