#1 What is my Credit Score?

What is your Credit Score?

A credit report contains everything lenders like to knowa bout you before they decide whether to let you borrow.

Three things you need to know about credit reports.

  1. There are three main UK Credit Reference Agencies (CRAs) -Experian, Equifax and TransUnion - and each owns a separate credit report aboutyou.
  2. A Credit Reference Agency (CRA) is an independent organisation thatsecurely holds data about you – including things like your credit applications,accounts, and financial behaviour.
  3. The CRA’s hold data about you for 6 years and then it’s forgotten,so just because you had a good score in the past doesn’t mean you’ll have agood score in the future.

Who uses Credit Scores?

Typically, companies offering the following products /services will use acredit report to assess your creditworthiness for their product or service:

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  • Bank Accounts
  • Credit Cards
  • Loans
  • Retail Finance
  • Utilities
  • Home Rental
  • Mortgages
  • Mobiles - pay monthly contracts
  • Car financing or leasing
  • Insurance’s (e.g. Life, Home and Car)
  • Business Loans (small businesses)
  • Trade Accounts

They are used more often than you realise.

How are Credit Scores used?

How your credit score is used will vary for each company. That's because they all use different methods of evaluating your credit history using their own analysis and models. These models are used to determine the likelihood that you’ll keep up with the credit repayments. The company will then apply cut-offs to determine if you can get the product or not, depending on the amount of risk they want to accept.

That’s why if you’re perceived as “riskier” you’re less likely to be approved, or if you are approved it may cost more. This illustrates the importance of looking after your credit history to ensure that you don’t get anasty surprise.

What do the banks say?

People often talk about their "Credit Score", but there isn't a magic number that banks use to judge credit applications by. We get your borrowing history from the CRAs and apply our own criteria to that in order to make each individual decision. So if you're rejected, try not to take it too personally. Rules differ between lenders and just because you don't tick the box for one, it doesn't mean you're a write off!

Task #1 Check your Credit reports for free.

The first step to improving your credit health is to check your credit reports. Don't forget, there are three CRAs in the UK. Differences between your three reports can damage your chances of getting credit, so it's best to check all three.

Here are three companies which will allow you to review your credit report for free:

Once you've got your credit reports move on to lesson 2