Understanding Your Credit Score
Despite what many people think, there is no such thing as a universal credit score. Every bank has a different idea of the person they want to lend to. In this guide you'll find out what lenders look for when deciding who to lend to and what makes you an attractive or unattractive borrower. And you can sign up for a Free Credit Report to see what lenders think of you with no impact on your credit score.
What is a Credit Score?
Credit scores, credit ratings and credit rankings are all the same thing, someone else’s assessment of your credit worthiness. For the sake of simplicity we’ll refer to it henceforth as a credit score.
There is no such thing as a universal credit score. Your financial pros and cons aren’t added up and digested down to one single number that all lenders consult before they lend to you. Each lender is looking for different things when they lend money and each one can be looking for different things at different times. With our Free Credit Report you can check your live credit score and find your best credit offers as often as you like without any negative impact on your credit rating.
The Two Big Credit Score Myths
- There is a credit blacklist - FALSE - Every lender has their own scoring system that they use when looking for the ideal customer, these are never published and vary from lender-to-lender and product-to-product. Just because you are rejected by one lender doesn’t mean you are on a blacklist, you could easily by accepted by someone else.
- Good borrowers get credit - FALSE - No one has to lend you any money, after all, banks and lenders are in business to make money. They want to be sure that you’re not only going to pay back the loan, but that they will also make a profit from interest charges. If you always repay your credit card balance in full each month a lender doesn’t stand to make much money from you – so you may get rejected for being too good.
What Affects My Credit Score?
Even though you don’t know exactly what a lender takes into account when deciding who to lend to, there are certain things that will reduce your chance of getting credit from anyone. To find out what is affecting your credit score and check that nothing is holding you back, check your Free Credit Report.
- Late Payments If you’ve had trouble paying your bills and have missed payments, or been late in making repayments, it will be recorded by the credit rating agencies. Lenders will see this and may think that you’re likely to have the same problem again.
- Financial Judgments As with late payments if you have ever been taken to court because you’ve failed to repay a debt this will affect your credit score.
- Too Many Applications Multiple credit applications doesn’t look good. Every time you apply, even if your application is unsuccessful, your likelihood of being accepted for credit is affected. You’re considered riskier because you’re trying to borrow more. Numerous applications signal that other lenders are turning you down or you are trying to borrow a possibly unaffordable amount. Avoid applying for too many credit cards, loans, and other credit products within a short time period. Use our eligibility checker to cut your risk of rejection by finding out how likely you are to be accepted for a credit card before you apply.
- Too Many Open Accounts If you have lots of accounts it can cause lenders to worry that you are at risk of borrowing more than you can manage. Transferring balances to a lower interest or interest free credit card and cancelling unused cards all help improve your credit rating. You’ll look like you’re in control of your finances, which lenders love.
- Too Many Homes Moving house too often can have a negative impact your credit score as it may reflect a lack of financial stability. It also may trouble lenders that they won’t know where to find you if you stop paying your bills. Lack of documentation about where you live can also have a negative impact. Lenders use the Electoral Roll to verify addresses so register to vote at your current address. You can check that your address history is up to date in your Free Credit Report and easily correct any errors.
- Errors on Your Report This one is quite serious and more common than you might think. Whether they are simple mistakes or the result of identity fraud, errors on the records held by the credit reference agencies can be incredibly harmful to your credit score. Most people don’t take the time to check their credit report, but you should do so at least once a year. Often, people are surprised to find errors, and some are even more surprised to find suspicious activity. If either applies, contact the credit reference agency where you accessed your report so that notes and amendments can be made.
- No History For those just starting out with financial responsibilities, or if you’re new to the UK, you’ll generally have a low credit score because you have little evidence that you can be a responsible borrower. Getting a credit card and using it responsibly can help you build a credit score and make you more attractive to lenders.
- Rent payments Experian have announced that they plan to start including rent payments in their credit files in coming months. This means that if you have missed or been late with your rent it could affect your ability to get credit. But the good news is, if you always pay your rent on time it can help you build up a good credit score. We’ll keep you posted on when this is coming in and what it means for you.
What Doesn’t Affect Your Credit Score
There are a lot of myths surrounding credit scores including just how much information is held about you. Don’t worry, a poor GCSE maths grade doesn’t affect whether a bank will lend to you. Here are 9 more things that banks DON’T find out about you from the credit reference agencies.
- Your salary/race/religion/medical history/criminal record
- Any parking or driving fines Unlike CCJs these are nothing to do with credit so aren’t listed.
- Your savings balances As savings accounts are not credit products they don’t appear.
- Whether you’ve checked your credit fileWhile this is recorded by the agencies it isn’t passed over to lenders.
- Dealings with the Child Support Agency
- Your relatives’ financial histories As long as you don’t have joint financial products no information on members of your family that you live, or have lived with, is held.
- Your student loan If you have a post-1998 student loan details of it are not held by the credit reference agencies. But if you have defaulted on a pre-1998 loan it may appear.
- Very old defaults or missed payments After six years most defaults or missed payments are wiped from your file. The exception is a bankruptcy that hasn’t been discharged.
- Reclaimed bank charges The fact you’ve successfully reclaimed a bank charge won’t appear but the original penalty will. So, if you have won it back ask the agency to remove it from your file.
Where to Check Your Credit Score
There are three main credit reference agents that will hold information which lenders use to compile your credit score – Experian, Equifax and Call Credit. They are independent organisations that obtain information about your financial behaviour from banks, utilities, credit card providers, and other companies that have financial information about you. They then compile this information and sell it to lenders, who use the reports and ratings to verify your application, determine your eligibility for products, and establish the interest rates you’ll be charged. For the banks and larger lenders, the information from the credit agencies is not the only factor used in assessing whether or not to lend, but because there is so much information it plays a key part in the assessment.
You should check all three of your credit files regularly.
Your credit files holds personal details, information about any financial links you have to other people as a result of joint accounts, whether you are on the electoral roll, the credit accounts you have, any missed payments or defaults, and a list of any companies who have recently checked your file. Before these services launched you had to pay £2 to each agency who, under the terms of the Consumer Credit Act, would then provide a ‘statutory credit file’ with the same information as you get from the free online services. You can now access each of your credit files for free:
- TransUnion– check with a TotallyMoney Free Credit Score
- Equifax – check with Clearscore
- Experian – check with MoneySavingExpert
Remember: You should check them all.
What to Check on Your Credit File
This is simple. Once you've got your Free Credit Report, CHECK EVERYTHING. Any little mistake can affect your ability to get credit so make sure all the details are accurate. Is your repayment history correct, or are some missed payments incorrectly listed? Are your personal details correct – do they have the right address for you now and the right past addresses? Are you incorrectly linked to someone else financially? Here's your quick checklist:
- Personal details
- Repayment history
- Missed payments
- Financial links
If you spot a mistake contact the agency which is holding the incorrect information and ask it to correct it. In some cases you may have to speak to the company which provided the information to the agency in order to get the problem rectified. Once it is sorted check with the other agencies to make sure the mistake isn’t still on their files. If the agency refuses to change your file then you have the right to add your own comments to your file with a ‘notice of correction’. You can also make a complaint to the Financial Ombudsman.
Fraud Scoring – the Hidden Hurdle
When they are assessing whether to lend to you banks don’t just consider your credit score, they also need to check you are making a legitimate application. In order to do this they consult two anti-fraud agencies to check for fake applications. National Hunter is used by nearly all the major banks and building societies to check applications. It looks for inconsistencies between your current application and applications you have made in the past. If it spots any factual errors it will raise a red flag for the lender. This can’t be used alone as a reason to turn you down but it will lead the lender to make further checks. What should you do:
- Be consistent. When you fill in forms always try to use exactly the same details, for example if your job can be described with a variety of titles try to always stick to the same one.
- You can also check your fraud file by making a data protection request to National Hunter, but it will cost you £10. This will show you the information you have included on past applications.
CIFAS keeps a record of known fraud committed in your name. Any information it holds should appear on your credit file under the CIFAS section, but if you are concerned you can request a copy of any information CIFAS holds on you with a data protection request, which will cost you £10.
What to do now
- Get your Free Credit Report;
- Check it is accurate and there are no mistakes;
- Close any out-of-date, unused accounts;
- If you're not already registered to vote, get on the electoral roll.