Few of us can say we don’t use a form of financial product, such as a credit card or mortgage. To grant access to these, most lenders and institutions in the UK use credit scores as part of their decision-making for applications.
As such as a crucial part of borrowing and funding, it’s essential to understand your credit score.
What is a credit score?
Credit reference agencies assess your information and provide this to lenders and financial institutions when authorised. This data is then used to determine a score that indicates reliability for borrowing purposes.
What is it needed for?
As credit scores are used as indicators for lenders, it could mean the difference between getting the funding you need or not.
Products that rely on credit scores are common, like short-term loans, credit cards, mortgages and finance offers. As many people will need one of these types of funding at some point in their lives, it’s vital to maintain a score that will support access to varied financial products.
However, a credit rating is not always used to determine the suitability of a product.
For example, probate loans are an often-important piece of funding that may not require a credit check.
Nevertheless, a higher score will open up your options, which may be particularly vital when the economy isn’t as stable and fewer products are offered.
What factors influence the score?
Your credit score is calculated as a cumulation of financial history and is therefore updated regularly as more data becomes available for your file.
Debt and previous borrowing all impact your report. If you’ve been late with credit card payments, surpassed your credit limit or been a victim of fraud, these can all impact your score. Applying for too many types of credit within too little time can also have a negative effect on your score.
What is a good score?
In the UK, we mainly use three credit reference agencies (CRAs), namely Experian, Equifax, and TransUnion. Since each one has its own rating system, there is no universal ‘good credit score’. However, they all use a scoring system, where certain numbers correspond to a rating of very poor, poor, fair, good or excellent.
Can the score be improved?
You are legally entitled to monitor your credit score for free, including with a report. It’s important that you’re able to see how you’re viewed by creditors to improve your prospects. Check all three major agencies, as lenders could use any of them.
Simple things can improve your score, like entering your name on the electoral register. Pay your credit payments on time and be sure to take all measures possible to protect yourself from financial fraud, as this shows up on your report. Likewise, stay at an address for longer so that you don’t have too many listed within a short space of time.
