Getting to Grips With Your Credit Score
Your credit score is the same thing as your credit rating and, as in most scoring scales, the higher the number, the better the result or rating. It’s not just a score, though, what your rating actually is in practice is an assessment that lenders can use to work out how risky it is to lend you money.
There are three credit reference agencies (CRAs) in the UK and their scoring scales range from 0 to 1,000.
A credit score of zero doesn’t mean someone is really bad with money, it just means that they’ve never taken out any credit. Surprisingly, never taking our credit doesn’t help you to get credit, because you’ve never been assessed. There are few things that don’t affect your credit score – even your mobile phone bill is used on it, so make sure you pay it on time!
Two types of score
There are also two types of credit score – generic scores and customised scores.
Generic scores are used by lots of lenders and businesses to work out how much of a risk you are (by risk, they mean how much trouble they’ll have getting their money back from you).
It’s easy to see your generic rating if you get your report from one of the big three CRAs – Experian, Equifax and Callcredit.
Customised credit scores have been developed by individual lenders for their own use.
They still use the generic credit reports, but this information is allied to account information from the lender’s own portfolio on customers. Someone may still have a poor credit record from the main CRAs, but if they’ve performed well with the individual lender, then this information is taken into account.
Many specialised lenders, like car finance providers and mortgage lenders, also use customised reports.
What you need to know about improving your own credit rating
You know that it’s important to have a good credit rating, so if you know yours isn’t so great, then there’s lots of things you can do to bring it up – it may take a while, but it can be done.
First of all, knowing what goes into making your score helps – these credit factors include:
- your total amount of debt to all your creditors;
- the types of accounts and credit it is;
- your number or frequency of late or missed payments, and
- the age of your accounts – if you’ve had the same debts for longer than expected then it’ll count against you.
These factors tell you which elements of your credit history and performance carry most weight in your score at the time it’s calculated. They also point you to where you need to up your game and take most care – if you always pay your debts “in the end” but are prone to forget payments, then you’re harming your rating for no good reason. Setting up a direct debit is your answer here.
Why lenders need your score
Lenders used to look at applicants’ histories line-by-line to work out their creditworthiness. This took a long time and was also prone to errors and Setting up a direct debit, letting some borrowers down and okaying credit to people who weren’t able to handle it.
Now, with scaled scores, people get fair and accurate ratings, as credit reports are objective and use consistent metrics based on fact, not opinion.
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