What is my credit score, why it matters and how to check it
With the cost of living making life more difficult for most Britons, boosting your credit score could help ease your finances, especially with buying a house and credit cards.
With finances tight for many people, now is a great time to check your credit score.
But what is a credit score – and why is it important?
Here’s what you need to know.
What is a credit score?
A credit score is basically a way to quantify your reliability when it comes to borrowing money and repaying it.
This is a three-digit number calculated through a points system based on what appears on your credit file, otherwise known as your credit file.
This report examines how you managed your debts and bills, and includes information such as:
- your registration on the electoral lists
- how much you owe lenders, for example mortgages or overdrafts
- missed or late payments
- any County Court Judgments (CCJ) you have had
- if your house has already been repossessed
- if you have ever been declared bankrupt.
Your credit report does not include:
- your income
- how much money you have, for example in savings
- student loans
- your criminal record
- medical background
- parking or driving fines
- late or missed council tax payments
If your credit report shows that you have always paid your debts on time, this will reflect well on your credit score.
Likewise, if you fail to repay loans or bills, it will lower your rating.
Your credit score may also be withheld if you have never borrowed money before (for example, using a credit card).
This is because it is difficult for lenders to assess the risk involved in lending you money.
Why are credit scores important?
Credit scores are essential if you need to borrow money, for example in the form of a mortgage on a house.
All lenders will look at your score before deciding whether to give you money.
A bad credit score can mean you’re rejected for a loan or have to pay a higher interest rate, which means you’re paying back more on top of what you borrow.
You might even have trouble renting a property or getting a cell phone contract.
And since potential employers can look at your credit score, it could even affect your chances of landing a job, especially if it’s a finance-focused role or business.
How do you check your credit score?
There are three main credit reference agencies (CRA) in the UK that securely store your credit history data and compile credit reports on it.
- Trans Union
They all get slightly different credit, but you’ll tend to fall into the same category for all of them – so there’s no magic number for what a good score is, you just want to fall into the “excellent” category. if possible .
You can check your credit report for free on all of them (a legal requirement) – and checking it won’t affect your credit score.
Your score can only be affected if you have undergone a “rigorous credit check”, which is a thorough examination of your credit history by a lender.
It’s a good idea to take a look at it because not only will it give you an idea of how you can improve your credit rating, but it will also allow you to dispute any information you believe is inaccurate.
- not having the correct last name on your report after your marriage
- have the wrong address
- unpaid invoices that have already been paid
If you see a loan or credit card on your credit report that you don’t recognize, that could also be a sign that you’ve been defrauded.
If you find something wrong, you should contact the CRA where you received your report for next steps.
How can you improve your credit rating?
Fortunately, if your credit score is bad or below expectations, there are quick ways to improve it.
Even if your credit score is generally okay, those quick wins could lower the interest rate you’re offered on a loan or increase your chances of getting a big mortgage.
- Register on the electoral lists at your current address – it makes it easier for companies to confirm your identity.
- Build a credit history – you can do this by: opening a bank account (and keeping the overdraft well below the limit), getting a free or cheap credit card that you pay off on time every month (you can ask your bank to set up a direct debit to help you do this), and take out a small form of credit, for example a mobile phone contract.
- Pay your bills on time and in full each month.
- Keep your credit utilization low – this is the percentage of your credit limit that you are using. So if you have a limit of £2000 and you have used £1000, your credit usage will be 50%. A lower percentage should help your score increase.
There are also several ways to maintain your credit score once you’ve improved it:
- If you need a loan, do not apply to different providers at the same time – As we have already mentioned, each credit check appears on your credit file. Several credit checks with lenders could suggest that you are too dependent on credit and lead the lender to think that you are in financial difficulty (even if you are not).
- Close unused accounts – it can give the impression that you have too much credit to manage.
- Track payments – several missed payments could suggest that your relationship with a company is broken, preventing potential lenders from letting you borrow money.
- Only borrow what you know you can afford – Debt, CCJs or bankruptcy stay on your credit report for up to six years and will seriously hurt your score.
Keep an eye out for fraud – fraudsters could have a negative impact on your credit score, for example by taking our credit cards in your name and not refunding them. Keep an eye out for this type of activity on your credit report.