Your Credit Score Explained

But first why bother? Why would you want to increase your credit score? Well for a lot of people the availability of credit is important. It helps buy homes, buy cars to help your family travel and in lots of cases provide a way to earn money or points whilst spending via credit cards. I’m not advocating having loads of credit but if you need to apply for credit, having a strong credit score is important.

If you’ve ever been declined for credit it’s pretty embarrassing! So reading this will help you improve your credit score and increase your confidence with what to do and when.

Your Credit Score Explained

How does a credit score work?

The interesting thing is that each company calculates your credit score differently. This is based on how much risk they are prepared to accept and how much profit they can make from you! They will look at your credit history based on their own analysis and give you a score. So the better your credit score, the more likely you are to get accepted and also for some products like unsecured loans, get preferential interest rates and terms. This is because a credit score is like predicting the future. How likely you are to repay the amount borrowed. A high credit score would indicate you are a ‘safe bet.’

How is your credit score calculated?

It’s a combination of a few different things:

What’s on your credit file
Your credit history with the company you’re applying to
What’s on the application form

Your credit score also takes into account things like:

The amount of existing credit available, how much of your credit you’re using
Your payment history,
How you use your bank account
Your payment history for utility bills.

Lenders use credit reports to confirm whether you are likely to repay the debt so don’t owe more than you can already afford to repay. Each item on your credit file and application form is given a value and then your credit score is calculated. The higher your score, the better the chance you will be accepted.

A great credit score will in turn put money in your back pocket.

What is my credit score?

Find out what your current credit rating actually is. There are a number of companies you can use to do this. Most either offer a free trial or give access free of charge.

My favourite are Money Saving Expert Creditclub and Clearscore. They are both 100% Free and provide you with some fabulous tips to get your credit score looking fit and healthy.

Money Saving Credit Club

According to the Money Saving Expert Credit Club, mine is looking pretty healthy right now. But if I wanted to apply for a remortgage to review my mortgage rates or change my credit card provider it tells me instantly my chances of who is likely (no guarantee) to say yes! I also completed a mini ‘wallet workout’ with a computer bot and after answering a few simple questions in under 30 seconds, it recommended to me that an AMEX Platinum everyday credit card would be a good choice for me and I had a 95% chance of being accepted. I am not looking at applying for a new card right now not what a nifty tool from Martin Lewis’ team! It is run in association with Experian.

Clearscore

Clearscore for me is another really simple way to check the healthiness of your credit rating. It is powered by Equifax, although are shortly to be acquired by Experian. Firstly, it has an app which I love because I live by my iPhone! It was easy to enter my personal details and seemed very personal. It gives me an overview of:

Average credit score in my area
My own personal score
The UK average

I can see month by month, what has changed on my credit file (Which is great to help prevent fraud) and gives me a list of things I am doing well and things to work on!

It has a nifty ‘To do List” with some simple personalised bite sized tasks to complete with links to some great articles to read to improve my score.

Why you should keep an eye on your credit rating?

To my surprise, it highlighted to me a few accounts I had forgotten about! I opened a Santander current account in 2001 and it was sitting there with no money and no activity. I don’t like to keep dormant current accounts open so I contacted Santander (it gave me which previous address it was stored under and the last few digits of the account number).