What is a credit score?
Your credit score is used by lenders to see how well you manage your finances and plays a vital role in what you are able to borrow and how much it will cost you.
When you apply for any form of credit or loan the lender has to decide whether or not they should lend to you. To do this they use a range of things to decide whether or not you are a good risk, the higher your credit score the lower the risk you appear to potential lenders. This high score suggests to them that you have been responsibly handling credit and money in the past and are likely to continue to do so.
What is a credit score and how is it worked out?
Your credit score is made up of information that credit reference agencies hold about you You can see your credit score as a number whereas credit card companies, loan providers and mortgage lenders only see the information on your credit report.They use this report, along with any information they have asked you to provide, such as income and when you moved into your current address, to decide if you are their ideal customer and safe to lend money to.
What are Credit Reference Agencies?
There are three main credit reference agencies in the Uk that hold information on your past credit behaviour. These are Equifax, Experian and Trans Union. Each time you make a credit application one of these agencies are contacted to get a snapshot of what you are like as a customer. These agencies collect and hold financial information about every adult in the UK.
What data can be held on you?
First of all, most of the data in your file will only go back 6 years. They take into account how often you apply for credit; how much you currently owe and whether you have been able to keep up with any repayments. They will look beyond 6 years for a history of bankrupsy or County Court Judgements, however long ago it was. They will look at:
• The electoral roll - this will verify your permanent address, how long you have lived there, who you live with and any other residential details the lender may be interested in.
• court records - if you have had any appearances in court for debt or bankruptsy and if you have any CCJ's
• Other lenders - there will be a record of any other lenders that have searched your file. If there are a lot of there it may indicate that you have made a lot of recent credit applications, that you need credit and are potentially more of a high-risk' customer.
• Financial associations-this covers anyone you have had a joint agreement with in the past. If their credit history is not good, it could affect you.
• Fraud - if you have committed fraud with credit in the past this will be recorded.
• Credit behaviour - this includes all transactions you have had with banks and building societies showing your general behaviour in dealing with your finances.
Personal Information.
Lenders will use the information you filled in on the form to apply for the credit, but it is not stored as part of your credit report. This is likely to include the information they need relating to your income, employment circumstances address etc. It is vitally important that you get all of this detail down correctly as they use it as a starting point in predicting what sort of borrower you will be. Although some of this is just a formality when it comes to income it can play a part in how credit worthy you appear, purely because you are on a low income you are more likely to have trouble paying back the credit.
If you think the information on your file is wrong, you can write to the credit reference agencies and ask for it to be changed although you can't ask for something to be changed just because you don't want a lender to see it. You can add extra information about your situation; this is called a notice of correction. If, for example, you had a debt but have now paid it off.
Things that don't affect your credit score
• Who lived at the address before you - Your credit score is linked to you as an individual, not your address
• Friends or family you live with - unless you have a 'financial link' the people you live with won't affect your credit score
• Anything older than 6 yrs
• Checking your own credit score - when you check your own file it will appear as administration check or something similar but won't affect your credit score.
How you can improve your credit score.
You can do these things to give your credit score a boost.
• Register to vote-this helps lenders confirm your identity and home address easily.
• keep your personal information up to date- make sure you update your address and contact details with your bank and utility providers if. they change
• Stay within your credit limit and make sure you pay your bills on time. Any late payments can be seen in your file for at least six years.
• Don't apply for too much credit in a short space of time.
