The crucials of your credit score: How to make heads and tails of your score

There are a lot of individuals who are unaware of the significance of keeping an eye on their credit score, as well as the significance of understanding what their scores indicate and why they are so important. It is a common misconception that credit scores only come into play when applying for financial products like credit cards, loans and mortgages. However, in today’s world, landlords and letting agents will check your credit before renting you a house, and a poor credit score can even affect your ability to get a mobile phone contract.

Do not be alarmed if the concept of credit scores is completely foreign to you; here, I will explain what they are, how you can determine what they are, and what you should do if they are not particularly high.

What is a credit score?

Your potential lenders will evaluate the amount of financial risk associated with lending money to you based on your credit score. If you have a strong credit rating, there is a greater chance that they will extend credit to you. If it is not good, you will have a greater chance of having your application denied or of having to pay additional fees.

Lenders will look at your credit score to determine whether or not they think you will be able to repay the money you owe on time and in full, or whether or not they think you will default on the loan and have trouble paying back the money.

Types of credit scores

There is no such thing as a single credit score in the UK; rather, each individual has three. This is due to the fact that there are three primary credit reporting agencies, namely Equifax, Experian and TransUnion, and all three of them employ various methodologies to calculate your score, which means that each one will be different.

The importance of having a good credit score

Why do you need a good credit score?

There are a great number of reasons why it is essential to have a credit score that is at the very least adequate, and ideally either outstanding or excellent. Your credit score will need to be in excellent form if you ever hope to be authorised for a mortgage so that you may buy your own home. Not only will this allow you to take advantage of the very best rates, but it will also allow you to be accepted for the mortgage in the first place. If you have a strong credit rating, you will also have a greater chance of being provided the lowest rates when it comes to taking out any type of credit, including offers for credit card accounts, loans with low annual percentage rates, and financing agreements with no interest charged.

It is essential to keep in mind that just because you have a poor or very poor credit score does not automatically indicate that you will be denied any and all types of credit, despite the fact that having such a score does make it more likely that you will be. However, lenders will view you as a greater financial risk and will thus give you higher interest rates as well as shorter buy and balance transfer offers as a result of this perception. There are places that will offer a CCJ Mortgage for example.

You should always check your eligibility and your chances of being accepted before applying for any type of credit, as each application is recorded on your report and can be detrimental if you are denied the credit.

What steps can I take to improve my credit score?

Maintain a close watch on your credit report

The three credit rating companies that we have identified above have access to a substantial quantity of information concerning you. On occasion, they can make errors concerning your credit; or perhaps a scammer attempts to exploit your identity to obtain credit without your permission. If you make it a habit of checking your credit report on a regular basis – perhaps once a month as part of the administrative tasks you perform around the house – you will be able to monitor what is taking place and have more time to deal with it sooner rather than later.

Register to vote

The electoral roll is frequently used as a form of evidence of address; hence, if you are not enrolled on it, it can significantly hinder your ability to obtain credit. A lot of people do not think about it until it is time for an election or they get a yearly reminder, so make sure you are on it and update it as soon as possible after moving residence.

Don’t be late with your credit card payments or miss a payment altogether

It is one of the most obvious things, but it is also one of the most significant things, and so it deserves to be mentioned. Even missing one payment or paying a couple of them late can cause you troubles that can last for years. Even if things are difficult, you should make every effort to avoid defaulting. Establish a direct debit to ensure that the monthly payment is deducted from your account without your intervention. Get in touch with your creditor if you truly are unable to pay it, and ask them what kind of assistance they may provide. Your credit score may not improve as a direct result, but you may avoid having additional, more serious actions taken against you, such as judgments from the county court.

Make sure everything is in order before you start relying on someone financially

Are you considering establishing a joint bank account with your new significant other? You should give this some careful consideration and make sure that they do not have a low credit score. It makes no difference how good yours is; if you are financially related in any manner, it could impact your credit rating. In this scenario, it is in your best interest to keep your funds fully separate from theirs until you can be certain that they have reached a point where they are financially sound. In a similar vein, if you decide to end your relationship with someone, it is critical to cut all financial ties with that person. This entails shutting down any joint bank accounts that may exist. You should also write to the credit agencies and ask for a notice of disassociation. However, the credit agencies will only be able to do this for you if you no longer share any financial ties with them.

Credit Score FAQs

• Can a credit blacklist be put in place against me?

No. Even if your credit score is zero, there is no possibility of being placed on a blacklist in the UK. Even if your chances of obtaining credit from a traditional lender will be significantly reduced if you have a very low credit score, this does not indicate that it will be impossible for you to do so. People with poor credit have access to a variety of financial aid options, including credit cards and other types of lenders.

• What if I have never borrowed money or applied for credit in the past?

As strange as it might sound, this might actually work against you! Think about it this way: if you have absolutely no credit history, how are lenders going to decide how reliable you are when it comes to paying back money that you have borrowed? When we turn 18, we all begin with a clean slate in terms of our credit histories (due to the fact that credit cannot be extended to individuals who are under 18), but the majority of us build it up with things like cell phone contracts and auto insurance that we pay on a monthly basis. If you do not have a history of credit, you might consider applying for a credit card and making it a priority to pay off the balance in full each month before the applicable interest rate kicks in.