Your credit score is a number that describes how likely you are to repay a loan.
It defines your credit worthiness and is a summary of your credit history. Lenders will use this number to see what shape you are in before deciding if to loan you money.
Your credit history is made up of all your past credit activity and anything recorded stays on there for 6 years. The higher your credit score the more likely they are to grant you credit. So in this case, the bigger the better!
Why your credit score is important?🧐
Your credit score is important as it is one of the main aspects lenders will look into before they offer you credit. It is also important as other entities aside from lenders use your credit score before determining if they want to deal with you. E.g landlords and employers.
Your credit score is a summary of your credit history. It reflects your repayment history and other factors relating to your credit file. e.g the number of products on your file or your level of stability which can be determined by the number of addresses registered on your file or how often you use available credit and by how much. In truth, there are so many data points that it is currently not completely clear how each credit reference agency works out your exact credit score.
How does your credit file affect the loan you get?😮
Your credit score is important because it significantly affects your ability to get a mortgage, credit card, car loan or personal loans and at best a bad credit score can leave you with bad rates and cost you more in monthly payments or cause you to get rejected by the lender.
Someone with a great credit score and record might get a 1.9% rate whilst someone with an average score might get a 3.5% rate and that affects the monthly payments by almost 50% when comparing like for like Mortgages, loans etc
When you apply for a loan the lender will check your file for a variety of factors including:
- How many missed payments have you had
- How many addresses have you had in the past
- How many searches have there been on your credit file recently
- How many credit accounts do you have open
- If there are any CCJs, defaults or Bankruptcy flags on your credit file
- If you are making a joint application such as a joint mortgage they will check the same details with your joint applicant
Lenders use all these factors along with their risk modelling to decide if they could lend to you at all and what rate they will offer you. Applying for a secured loan(e.g a mortgages) will place much emphasis on the asset as it is collateral while unsecured loans(e.g credit cards) will look more into your credit file.
Knowing what affects your eligibility for products outside your credit score are also important and it is worth following our(or a) best practice list when considering a Mortgage, credit card or any financial product so to ensure you do the right things months before you make your credit application as this will put you in the best position to be accepted.
What is in your credit score?
The short answer: a lot. There are so many different data points being added to calculate your credit score by the different bureaus that is is impossible to sum up every data point on your credit score. We have been able to compile a list based on previously released statements from the credit bureaus.
Some of the data points in your credit score may include:
Your address history
Your credit accounts and their payment history
Your credit utilization
Public records such as County Court judgements, electoral roll registers, Individual voluntary agreements, Bankruptcies
Types of Credit
It is worth noting that not all these factors are displayed back to you in your credit report but they might be used to make up your credit score.
The data points that are definitely not included in your credit report include:
- You salary
- Gambling activity
- Your student loan repayments
- Parking fines
- If you check your credit score
- Criminal records
- Council tax payments
- Savings accounts(Only your current accounts are shown)