What Is A Credit Score And How To Check It For Free
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What is a credit score?
A credit score is a tool used by lenders to help determine whether you qualify for products such as a mortgage, credit card or a loan. If you have a high credit score, banks and other lenders will be more willing to let you borrow money from them.
Lenders use the information on your credit report to calculate a numerical score that represents your credit history. This helps to indicate how well you manage any current repayments you may have, and what kind of borrower you are overall.
Why is it important?
Your credit score is more important than most people realise, as it can play a huge role in whether your application for something like a mortgage or a credit card is accepted.
People with a higher credit score are often seen as a lower risk, which means that lenders are more likely to give them credit.
However, every lender follows a different policy for credit scoring, so if you don’t meet the criteria for one lender, you may still be able to get credit from another lender.
Although, it is important to find out why you were turned down before you make another application. Too many credit searches in a short period of time may be seen negatively by lenders.
How is it calculated?
Your credit score is based on your credit report, and different factors on your credit report can cause your credit score to change. This includes:
- Your current debt total and how much of your available credit you are using
- Credit searches you have made
- Your history of credit payments
- Public records like the electoral roll
Your credit report has details of all of your credit agreements such as loans and credit cards, including any credit you hold jointly with other people. It also includes information on any payments you may have missed over the past six years. However, it doesn’t include certain information such as your salary.
If you’re close to using all of the credit that’s available to you, lenders may see this as a sign of struggling with your finances, and may think that you are managing your money poorly.
How can I improve my credit score?
To manage your credit score, it is important to review your credit report regularly to ensure that all of the information is correct. You should also keep an eye out for fraudsters on your credit report, as their activity could damage your score badly.
You should make sure you don’t miss any payments, as this could result in a major decline of your credit score.
Registering on the electoral roll can also help to increase your score, as it helps lenders verify that you are who you say you are.
To keep your score healthy, make sure to limit the number of credit applications you make. By making too many applications in a short space of time, lenders will perceive you as being overly reliant on credit, which makes you a higher risk.
How can I check my credit score for free?
You can check what your score is by signing up to ClearScore, which is totally free and you don’t have to provide any card details.
ClearScore uses credit reference data from Equifax, and the information comes from lenders, mobile phone companies and utility companies.
ClearScore gives you a score from 0 to 700, and the higher the score, the more likely you are to be approved for credit.
The major UK agencies are TransUnion, Equifax and Experian. These agencies don’t decide whether or not you get approved for the credit, and they don’t find out from the lenders if you have been approved or not.
ClearScore rates between 420-465 as good, and anything above 466+ as excellent.
It may come as a surprise to you, but if you have little or no credit history, this may negatively affect your credit score. Many people think that if they have never needed to borrow money before and they have no debt, they’re the perfect person to lend to – however this is not always the case.
If a company sees that you have a good track record of borrowing, it helps them to see that you’re likely to pay them back on time.