Credit score what does it really mean?

I’ve just found out that my credit score has dropped – should I be worried?

 Actually, you don't have a credit score in the UK, you don’t have a credit rating, and there’s no such thing as a credit blacklist.

So, when you say your credit score has dropped – what exactly do you mean by that?

Well, I paid a credit reference agency to check my credit score and it's dropped

So you went to one of the credit agencies – Equifax, Experian and Callcredit – and paid them a sum to get your 'credit score'. You'll get a score up to 600 from Equifax, up to 999 from Experian and up to five from Callcredit.

this tip came from money saving expert

You're not alone, many people do it and many people think these things are set in stone. In truth it doesn't mean that much.

So I do get a score, but it's worthless?

The first thing you need to appreciate when you apply to a lender is that it will judge you based on three criterias.

1. Your application details. This has crucial information such as your salary, which dictates whether borrowing is affordable. This plays a huge part in the lending decision - and it's info the credit reference agencies don't have. 
2. Any past dealings you've had with that lender. Your own bank may be better disposed towards you - or worse, biased against lending to you. Again, the credit agencies can't factor this in.
3. The info contained in your credit reference files - this is what the credit reference agencies base their score upon.

The next thing to understand is different lenders are looking for different things, so they score you differently. Just because one lender rejects you doesn’t mean another lender will do the same. The idea that this is all based on some simple score given to you by one of the credit reference agencies is false. At best, it's just an indicative guide to roughly how good or bad a risk you are.

In that case – why do they sell it to me?

 the key word in what you’ve just said is ‘sell’. They sell it to you. Credit reference agencies used to make all their money from selling data to lenders. The idea was to help lenders predict your behaviour, which allowed them to assess whether or not you were a good person to lend to. They do that by deciding not just if you are a good or bad risk, but if you will be profitable or not.

Then some bright spark at the credit reference agencies realised they could generate a business called 'credit management'. It meant they could start to sell you all the other sorts of data and monitoring products for the first time and start making money from it. You ask why they sell it to you – well, it makes them money.

Does that mean it's completely worthless and I should ignore it?

no  It's a decent indication of your rough creditworthiness, and certainly it's worth looking at the things they say are blemishes to see what you can do to improve your credit. 

 you should only see your score as an indication of roughly where you are in the credit-sphere.

What works for one lender will not necessarily work for another – so there's no tried and tested right answer.

It's interesting how some of us swear by our credit score when in fact it can work against us,or be better for lending with certain company's than we thought.


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