The Truth About Credit Scores
“I’ve got to get my credit score higher” runs the mantra of many. But just what exactly is a credit score? Who decides it? And what affects it? Darren Beach from Experian CreditExpert is on hand to explain all.
What is your credit score? When you make a credit application, most lenders want to make sure you’re able to pay it back before they commit to giving you credit. Your credit score is the number that lenders calculate, so they can work out whether or not you’ll be a responsible borrower and likely to repay what you owe them.
How do they work it out? They weigh up the relevant information they have at their disposal – largely based on your actual credit application, any info they already have on you (for example if you are already their customer) and, last but not least, your credit report from a credit reference agency like Experian. Usually, a higher score means you’re seen as lower risk – meaning you’re more likely to get credit, and at better rates.
What affects it? Your credit score is not set in stone. Firstly, different lenders can score differently, using their own formulae depending on their own factors and what they consider to be important – there really is no ‘magic number’. Secondly, your own credit rating changes along with your own financial behaviour – so you can take steps to improve it yourself.
So how can I improve my score? Well, you can make sure your credit report is up to date and that the info on it is accurate. If you do find anything that needs correcting, contact the relevant lender and ask for an amendment. Even small details like the way your name and address is recorded could have a significant impact. Also check that you’re listed on the electoral roll.
In terms of good habits, try to stay within your credit limits and do try to pay your credit bills on time – every time – as missed or late payments can make you look unreliable, stay on your credit report for at least six years, and this can have a big impact on your score. When you do apply for credit, try not to make applications too close together, as it can make it look to lenders as though you’re under the kind of financial stress that can make repayments tough. Conversely, some credit is better than none at all – without a track record of managing credit, lenders can’t assess you properly.