Every time you apply for credit, whether it's a mortgage, credit card or personal loan, lenders will work out a credit score for you to help them decide whether or not they should accept your application.
Here, we explain exactly how your credit score works, and what you can do to improve yours if it's holding you back... .What is my credit score?
Your credit score is used by lenders to help them determine whether or not they should lend to you. It is based on lots of different things, including whether you've been late with or missed any debt repayments in the past, as well as the number of credit accounts you've opened in the past.
You are considered low risk by lenders if you have a high credit score, which means any applications you make are likely to be accepted. If you have a low credit score, then lenders will see you as a greater risk, and any applications you make to borrow money are likely to be refused.
How is it arrived at?
As well as information from the electoral roll, which provides evidence of your identity and address, your credit rating will be based on how many credit accounts you already have - and how well they are managed - as well as anyone else you might have financial links with. So, for example, if you've ever taken out a loan in joint names and they have defaulted on repayments, this could have a negative impact on your credit score.
Any county court judgements (CCJs) made against you, as well as if you've ever been made bankrupt or if you've had an IVA, will also have a bearing on your credit score.
Lenders will also obtain information from other companies you might have borrowed from in the past to see whether you have missed any payments in the past, or if you only repay the minimum every month.
And they will look at how long your credit history is, so if you've been a borrower for a number of years and have always made payments on time, they are likely to look on you more favourably than someone who has only borrowed once or twice relatively recently.
Why does my score matter?
Lenders actually employ their own scores that you must meet if you want to borrow from them. Each lender will use slightly different criteria and scores required can even vary between different deals offered by the same lender -the best ones needing the best scores.
When a lender accesses your credit score (from one of the credit reference agencies such as CallCredit, Equifax or Experian), it may or may not meet the requirements of that particular lender for that particular deal.
Where can I find out my credit rating?
You can get hold of a copy of your statutory credit report for £2 from any one of the three main credit reference agencies, Experian, Equifax or CallCredit. You can also pay more for monthly online services which you can access when you want and will send you an alert should anything change on your report. You can look around for all kinds of options at MoneySuperMarket's credit monitoring channel.
How can I improve my credit score?
There are plenty of things you can do to improve your score. First, make sure you are on the electoral roll at your current address, as companies will check this when you make credit applications.
You should also check that any information held on you is correct and up to date. For example, if your report shows a missed payment and you can prove you didn't miss one, you should alert the company involved and ask them to amend the information on their report. If they don't do this, you can put a 'notice of correction' on your report explaining what happened and why the information in your report is wrong.
Close down any credit accounts you no longer use, as having lots open could harm your credit rating.
Don't make lots of applications in quick succession either, as this will ring alarm bells with lenders. If you are planning on making more than one credit application, space them out, otherwise it could look as though you are struggling financially.
And finally...
Remember that because lenders calculate credit scores differently, even if you don't make the grade for one lender, another might still be prepared to offer you credit.
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