Basically, a credit score is a three-digit number that indicates how reliable you are at borrowing and repaying money. It is worked out by collecting information about you from public records, lenders and other service providers.
The scores are based on the amount you have borrowed, your repayment history and other information such as your job and age.
Credit scores can influence your ability to access loans and credit, as well as the terms you are offered if your application is successful.
It can also be a factor if you want to buy a car on finance or when buying a new smartphone through a pay-monthly contract.
A good score can also see you have access to the lowest interest rates available on mortgages and it can affect how much you pay for your security deposit on a rental house.
What is a good credit score?
Your credit worthiness is calculated using a points system.
In the UK, there are three main credit reference agencies – Experian, Equifax and TransUnion – and they each have their own system of rating your credit worthiness.
Experian, which gives scores out of 999, has said a credit score of 700 or above is generally considered good and a score of 800 or above is considered to be excellent.
Equifax, which gives you a score out of 1,000, considers scores between 740 to 799 to be very good; and 800 up are considered excellent.
TransUnion considers a good credit score to be between 721-780 while 781 onwards is excellent.
How can you improve it?
This may seem an obvious one, but keeping up with repayments is a good way to show lenders you are sensible with money and are likely to pay back what you borrow on time, an Equifax spokesperson told the Money blog.
The credit reference agency said it is also best to avoid staying close to or exceeding your credit limitas this can indicate that you’re experiencing financial difficulties.
Rajan Lakhani, money expert at the money app Plum, said registering on the electoral roll is also an easy way – and only takes minutes – to improve your score as it gives lenders confidence that they know where you are based.
He also said getting a whole credit report is another way to keep an eye on any errors or even fraud.
“A lot of people will just look at the score but it’s worth getting the full report,” he said.
“Even if there is something that has occurred but there were special circumstances around it, you can get a notice of correction and it explains that.”
Mark Mcelvanney, client services director at IE Hub, said “consistency” was important too.
“Your credit scores are built up of lots of difference data sources so every time you make an application for a loan, credit card or any form of credit you enter information into that application,” he said.
“Making sure the application information is consistent is important, even down to your job title, because if they look different in each of those applications, the ultimate worthiness will be impacted and there could be suggestions of fraud or instability.”
And it is also worth “de-linking mortgages” after splitting with a partner, he added.
“If their credit file starts to suffer that can have a negative impact on you,” he said.
Other tips from Equifax…
Take control of your finances – Having combined finances – like a joint mortgage or credit card – could negatively affect your ability to access credit, if the other person’s credit history is poor.
Know the difference between hard and soft credit searches – When you apply for credit, it leaves a “footprint” on your credit report and making too many applications in a short space of time can have a negative impact on your score. Instead, space out and limit the number of applications you make.
Check your credit report regularly – Despite popular myths, checking your credit report regularly does not negatively impact your credit score.
Skynews online