Credit Score

When you apply for a current account, credit card, personal loan, hire purchase (HP) agreement, mortgage, mobile phone or indeed any other type of credit, the lender will almost certainly go to a credit reference agency to obtain a 'credit score' on your application. This will help the creditor to decide whether to accept your application and, where relevant, to help set your maximum credit limit onto your new account.

Credit scoring is a system used by the vast majority of lenders to assess how credit worthy they believe you are. It is an automated technique and when combined with your answers to the questions on the application form enables the lender to decide whether they should grant credit or not. The creditor uses the information from your credit score to try and predict how big a risk it is taking by allowing you to borrow from them. Your credit score will also determine the amount of credit that is made available to you.

A score is a snapshot of your credit risk picture at a particular point in time. The higher your credit score is, the lower the risk is to the lender. Your score will be very influential in determining your ability to obtain credit and it is very useful for you to know how to improve and maintain it. This information could help you to avoid the need for debt management assistance in the future.

If your total score reaches a certain level, then you 'pass' the credit score. If you don't score enough points, the lender may either offer you a lower account limit or even reject you totally.

Companies like Equifax, Experian and Callcredit keep records of most of the UK’s borrowing. There is a record for almost every adult in the UK. Each file holds things like:

• Adults on the electoral register at your address

• Credit agreements

• Details of any late payments

• Details of any defaults

• Court judgments against you

• Bankruptcy orders against you

• Previous applications for credit

• People living at the same address as you

What is the most important factor to consider?
Most credit score and credit rating agencies use many factors to determine your credit score. Listed below are some of these factors:

• Payment History

• Amount owed

• Length of credit history

• New credit

• Types of credit in use

• Amount of recent credit applied for

• Age

• Occupation

• Income

• Where you live (Do you own your home or do you rent )

• How long you lived at your current address

• Marital status

Why do lenders use scores?
Credit scores provide an extremely reliable and valuable guide to future risk based solely on data provided within an individual’s credit score. They are used by lenders to help them work out whether you qualify for the credit you are applying for. A high credit score is means a low risk to potential lenders when offering new credit to a consumer.

Does everyone have a credit score?
Yes. Anyone who has had credit will have a credit file. For a score to be calculated on your credit report, the report must contain at least one account that has been active for six months or longer. In addition, the report must contain at least one account that has been updated in the past six months. This ensures that there is enough recent information in your report to compute an accurate score.

How often does the score change?
Your credit file is regularly updated with new information from your creditors and companies you have applied to for credit. Your credit score is updated automatically on a weekly basis. However, if you applied for credit today it could take up to 30 days to show on your file.

How can I improve my Credit Score?
Generally, people with high scores consistently:

• Pay bills on time
• Keep balances low on credit cards and other revolving credit products
• Do not have too many accounts open at any one time

• Ensure your name is on the Electoral Roll at your current address

• If you are employed, wait till you have been employed for a minimum of 6 months ideally wait until you have been working for the same employer for more than a year before applying for new credit

• If you are self-employed it can take a long time to build up a good credit rating so be sure to pay particular attention to the other "plus" points and if you are currently employed but planning to "go-it-alone", make sure you apply for any credit before you leave employment

• Keep credit applications to a minimum

• If you are married, you are perceived to be a better credit risk by some lenders

• Try not to move too often – if you have lived in the same place for 5 years it is a plus point.