Credit Scores

Knowing how a credit score is worked out and how it affects your chance to obtain credit is the start to building your credit score

Credit Scores

Your credit score is a number, which notifies lenders of how likely you are to repay when applying for a loan or credit card, and it is based on your credit report (a record of how you managed your credit previously), mortgages, etc. A high credit score means a higher chance of being accepted for a loan with better, lower interest rates. A low credit score can lead to high-interest rates and a lower chance of being successful in borrowing from a lender. 

What Affects Your Credit Score

Your payment history is a main determining factor of your credit score, as it includes missed payments which lower your score. This is because lenders want to be sure you can repay your debt on time. Paying your balance at the end of each month prevents any interest charges and negatives on your credit score. 

Applying to various lenders after getting continuously rejected leads to hard searches in your credit file, and this can affect your credit score negatively.

Furthermore, any County Court Judgements, Bankruptcy Discharges, or any debt relief orders will negatively impact your credit report. CCJ and bankruptcy discharges stay on your credit report for 6 years, though their impact can be lessened by managing your finances appropriately.

How Your Credit Score Is Calculated

The business you apply to for credit will check your credit history via one of these three agencies, Equifax, Experian, or TransUnion, to see how likely you are to repay the money back. For Equifax, a good credit score is from 531 - 670 (up to 1000 for an excellent score). Experian, a score of 881 - 960 is a good score (up to 999 for an excellent score), and TransUnion is from 604 - 627 for a good score (up to 710 for an excellent score). 

Other information can be your employment status; if you are unemployed or not a full-time worker, your score may be lower. The type of credit you are applying for and the amount of credit you have, such as being close to a limit on a loan or having overdrafts, can affect your score. The number of applications you have applied for, as every time someone checks your credit history, it is recorded on your credit file. It may be lowered if, over a short period of time, many checks have taken place. It can give off the impression that you are struggling with repayments. 

There are two types of credit checks to know of; a hard credit check is done when you make an application for credit. It will be recorded on your credit report, and any company looking for your credit report will see you have applied for credit. A soft check, on the other hand, does not leave any trace on your report and is carried out by employers or lenders who need an eligibility check.