Things you should know about your credit score & why you should care.

By Natasha Culzac

Your score could affect your future holiday,car & first home. Ouch! That's how important it is. 

Your credit score reflects your financial behaviour and tells lenders just how reliable you are. Generally speaking, the lower your score the more of a risk you pose and vice versa. Your score can also help to determine whether you get a good interest rate or not.

How do they work out scores?

They mainly take into account three things:

1. The information you’ve given them in your application, such as your age or how much you earn.

2. Any data they privately hold on you. For example if you’ve been banking with them since you were a teenager, they’ll likely have a wealth of knowledge of your financial behaviour.

3. Importantly, they’ll also take a long hard look at your credit report, which is your financial resume. Your report is constantly being worked on behind the scenes by credit reference agencies such as Equifax, Experian or Equifax. It’s these guys’ business to collate information about you. This report has data going back six years and is important because if you ever want to buy a house, or get a Fender guitar on finance, this historical stuff will help lenders come to their decision. Your actual employment CV might gloss over the time you got fired for swearing at a customer, but sadly your credit report hides nothing and will have all the gory details of failed relationships you’ve had with any credit previously taken out.

Points are attributed to the above relevant pieces of information and these are added up to give you a score. As mentioned, the higher the score the better looking you are. Things you wouldn’t expect can also give you a points boost, such as being registered to vote.

What is the score out of?

Each bank or lender has their own method and system of scoring, so nobody knows! It’s kept pretty confidential and you won’t be able to find out where you sit on their range. If you get declined for something, they’ll simply just give you the main reason for rejecting you.
You can, however, pay to look at your credit report with one of the agencies that the lenders refer to in their process. These guys have their own scales - for example, Experian will give you a score out of 999 and Equifax one out of 600. This is just a guide to see what sort of state your financial life is in.  For a more in depth look of what a good score is, see our post here.

Why should I care about my score?

Simply speaking, the worse your rating, the more it will literally cost you. Say you want a credit card to fund your six month jaunt around South America, or car finance so that you’ve got a glistening hatchback for a new job, a crap credit score will mean that you’ll likely be given a crap (read: high) interest rate.

A lender, to offset the risk to lending to you (because your score is low), will make you pay for the privilege. All of this becomes all the more important when you start to think about your long-term future and the big financial commitments you might make, such as buying a house. Whether you get accepted for a decent mortgage will hinge on your credit history and even on things such as whether you’ve ever taken out a payday loan. To know more about what your score means, here's a handy article.

Anything else to know?

Yes - your credit score is not universal. Different lenders have different criteria, so the score you get with one you’ll probably not get with another. This means that thankfully if you’re denied a credit card one place, there’s still a chance you may still be approved elsewhere.

It’s also worth noting that just because you have a high score doesn’t mean you’re automatically going to be approved everything under the sun.

If you want to know what information lenders look for and is held about you when it comes to working out your score, read our ‘what do lenders know about me’ article here.

Top Takeaway

The credit score that a lender gives you could be the make or break of your application for credit. The higher your score, the more likely you’ll be approved. Also, a common misunderstanding is that the score that a credit reference agency gives you is the definitive, universal score for you. That’s not the case. Their scores are simply for guidance and are not the scores that lenders see or give you themselves.


By Natasha Culzac

Thanks to a journalistic career history and a childhood at Sylvia Young Theatre School, Natasha has her fingers in a few professional pies, doing her best impression of a model and actor as well as personal finance writer. Outside of work she compulsively watches BBC period dramas and constantly lies to herself that this year will be the year she learns French, once and for all.

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