What is a credit score?

In the world of credit, it is difficult to pinpoint correct information as it is filled with misinformation and misunderstanding, making it difficult for the average person to find out more information or to even want to get involved with credit. Read on to debunk these credit myths and set the truth free.

What does my credit score look like?

A credit score is a tool used by lenders to help them determine whether you qualify for a particular financial service, such as a loan or credit card. Based on information in your credit file and data, collected from various sources an algorithm will assign a numerical value to you and this will be seen as your credit score. Different organisations score you differently and where some will give you a score from 1 to 999, others could just give you a score out of 5. Lenders also will not tell you the number they assign to you or why you have been rejected by them.

Actually in the UK, there is no universal credit score or a credit rating, and there is no such thing as a credit blacklist, of banned people.

What is a good credit score?

While different credit reference agencies and lenders will use different systems, most scores range between 0-999. The higher this score is the less of a risk you are seen as.

 

If you have no to little credit history then you won’t be placed at the bottom but in the middle of the “poor category” which gives you the ability to build your credit history and score.

Credit scoring is all about trying to predict your future behaviour

This is more challenging if you have little to no credit history. when you apply for a product a ‘credit check’ is done.Lenders will compare their results of you against their internal threshold and if there is no evidence that indicates that you always repay on time it would make them highly likely to reject your application.

Building a credit history is one of the key challenges that everyone faces and it’s not easy if no one will give you credit however it is doable. If you are in this situation, then read our last part to this series of how to build your credit history for a better credit rating. Aimed at students and younger people, but can still be applied to everyone.

What lenders really know about you?

It’s important to be aware of exactly what lenders know when you apply, so you can present yourself in the best light. Importantly, it’s more than just what’s on your credit file.
The application form: In many ways this is the most important part, allowing lenders to obtain crucial details of where you live, salary, reason for the loan and whether you are a homeowner
Credit Reference agency files: The main three in the UK are Callcredit, Equifax and Experian, who compile information that allows them to send data on any UK individual to prospective lenders. Data can be obtained from four major sources: Electoral roll information, court records, search, address and linked data, and finally account data.
Fraud data: If you have committed fraud or someone else has committed fraud against you then it will be held on your file under the CIFAS section
Energy / phone providers: Many providers now share credit report data and when you switch energy providers or even change from a prepay meter to a normal credit meter it is likely to leave a footprint.