Credit Scoring

The Definitive Guide to Credit Scores

Chances are you have wondered what a good credit score is and why it is so important. Your credit score will determine your eligibility for getting a home loan, credit card, personal loan and much more. It plays an important role in your financial future, so it stands to reason that you’ll want to learn everything you can about it. In this article you will get some very valuable information and advice regarding credit scores that can make a hugely positive impact on your life.

The Basics of Credit Scores

Your credit score serves as a way for lenders such as with who you apply with to determine how much of a liability you are going to be. It is the sum total of your credit history, which includes things like payments, bankruptcies, loan defaults and much else. The higher your credit score is, the easier it will be for you to obtain financing when you need it. Your credit score is impacted every time you are late on paying a bill or don’t pay back a loan you have taken out. It can be positively influenced when you take care of your debt or bills in a timely manner.

How Credit Scores are Calculated

There are a number of factors that go into calculating a person’s credit score, and you will need to know about each of them.

Some of these things include:

  • Credit history: Your credit history consists of things like outstanding debt/loans, credit limits, repayment history, and how many credit accounts you currently have.
  • Inquiries: An inquiry is put in your credit report whenever you apply for a loan. This is why it is generally not a good idea to fill out a lot of loan applications within a short span of time.
  • Public records: Something like a bankruptcy or legal judgement would be considered a public record, and it can have a huge impact on your credit.

Where Credit Agencies get Their Information

A credit rating agency won’t ever contact you directly to get information that will later go in your report. Instead, they rely on banks, credit card companies and businesses that you have been involved with financially. This can be positive or negative information, depending on the situation. One example would be late payments, which can and do affect your credit rating once they go in your report. You have no control over what is put into your report, except if there is a mistake of some kind.

There is no Single Number for Your Credit

You will need to keep in mind that there isn’t a universal credit rating for any person. This means that not all lenders have the same number for you or anyone else. When you apply for a loan, the lender will use their own methods to determine what your credit is like. This is something that a lot of people don’t understand, despite the fact that it affects them greatly. A huge loan like a mortgage will have stricter standards for examining a person’s credit than a small year-long loan. It all depends on the lender and the amount you want to borrow.

What is a Good Credit Score?

There are three main credit rating agencies in the UK, and each of them have different standards when it comes to what is considered a good score.

  • Experian: A very poor credit score is between 0 and 560, while a great score is between 961 and 999.
  • Equifax: A very poor score is between o and 278, while a great score is between 467 and 700.
  • Callcredit: A very poor score is between 0 and 550, while a great score falls between 628 and 710.

Credit Scores Are Always Changing

You also need to keep in mind that your credit score is constantly changing. This number changes based on a lot of different things, including how good you are about paying back your loans on time. It is a reflection of how responsible you are when it comes to taking out lines of credit.

How to Improve Your Credit Score

There are tons of ways that you can improve your credit score, including just paying your bills and accounts on time. The better you are about consistently doing this, the faster your credit rating will rise. You can’t be late on making your loan payments all the time while expecting to maintain a healthy rating.

It is also important that you make a point of looking at your credit report a couple of times a year to check for mistakes. Sometimes errors are made by credit rating agencies, so you have to take a close look at your report once in a while. By doing this you could potentially raise your rating by quite a bit.

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