If you’ve never really understood what your credit score is then it’s time you found out. You need to know how the system works because this will, in turn, help you to improve your score and maintain it going forward so that you can get access to credit when you need it most.
You might think that your credit score is different to your credit rating but they’re actually one and the same. It’s a measure of how much risk a lender takes when they give you credit. Risk in this case is how easy or difficult it’ll be to get the money back from you.
The UK Has Three Main Credit Reference Agencies
The UK’s three main CRAs – Equifax, Experian and Callcredit – use scoring scales that range from 0 to 1,000. You’ll only get a score of 0 if you’ve never had credit before as, quite simply, the agencies have no information on you.
There Are Actually Two Types Of Credit Score
Namely, generic scores and customised scores.
Lenders and businesses use generic scores to assess how much of a risk it is to lend money to you. The three big CRAs can send you your generic score if you ask.
Individual lenders use their own customised credit scores for customers, based on the information they hold on those customers. Specialised lenders, like car credit companies, prefer to use customised credit reports.
Ways To Improve Your Credit Score
If you suspect – or know – that your credit rating could be better, then the good news is that you can do something about it. It helps you to know what information actually goes into creating a credit report; it includes:
- the total debt you owe to all your creditors;
- what types of accounts and credit agreements you have;
- how many late or missed payments you have, and
- how long you’ve had each account – if you’ve had the same debts for longer than intended, they’ll count against you.
These pieces of information reveal what was affecting your credit history at the time it was generated and recorded. They’ll also offer an insight into how you can help yourself. For example, if you’re habitually forgetting to pay your mobile phone bill, even though you have the money, you’re really letting yourself down. Using a direct debit is the way forward here, so you don’t end up getting a call from the provider or even having your service restricted.
Why Do Lenders Need To Know Your Score?
Credit scores have made it easier for lenders to consider applications. Before there were standardised credit scores, lenders used to have to look through each applicant’s history to make a judgement on their reliability. Not only was this very time-consuming, but it led to some lenders making decisions on gut-feeling or even personal prejudices rather than facts. Some applicants, as a result, would be denied credit when they could have serviced the debt well and others would be offered money when they were in fact unable to repay properly.
Using a standardised score means that the decisions are much more objective and fair which is better all round.
