Are you confused by credit scores?
Your credit score is a rating which is based on your current and previous financial situation. Financial companies and other organisations will check your score when you apply for credit with them. They use this information to decide whether you could be a good candidate to lend to. Your credit score is built from a variety of different factors, one could be whether you pay your bills on time.
Financial institutions use credit reference agencies to view your credit score when you apply for credit with them, these agencies also allow you to request your credit score. The four credit reference agencies within the UK are Experian, Equifax, Crediva and TransUnion.
When applying for credit, finance companies will use your score alongside other selected aspects to assess whether you meet their lending criteria. This allows them to decide whether you are suitable to borrow from them, how much you can borrow and how much interest they are going to charge you.
Paying your bills on time helps to prove you are reliable at making repayments. This can help to prove you manage your finances well each month, usually leading you to have a higher credit score. Whereas if you fail to meet the deadline for your repayments it could suggest to lenders that you are struggling to manage your finances and could be a risk to lend to. This sort of behaviour could lead to you having a reduced credit score.
A few simple tips that help to build your credit score:
- Meet your repayment deadlines
- Register on the electoral roll
- Don’t apply for new credit too frequently
- Dispute any inaccuracies on your file (if applicable)
If you would like to be able to view your credit score monthly, then ClearScore has an app that allows you to view your score for free. ClearScore gets its information from the credit reference agency Equifax and gives the information to you in a way that’s simple to understand. More importantly it gives personalised recommendations on how to improve your score.