Understanding your credit score


Understanding your credit score

What is a credit score?

Your credit score, also known as your credit rating or ranking, is a number that indicates how likely you are to qualify for credit.

How well you score is determined by a range of factors, including your overall debt level, how much of your debt is unpaid, if you have any defaults and how much credit is still available to you. The UK model generally ranges between 300 and 850, however, each credit reference agency has their own version.

The higher your score is, the more likely you are to be accepted for credit. If you’re struggling financially and there are defaults on your report, your score will be lower, making it harder for you to apply for financial products like mortgages, loans and car finance.

The main credit reference agencies in the UK are Callcredit, Equifax and Experian, although there are alternatives like ClearScore and Noddle.

What does and doesn’t affect my credit score?

How you handle your finances will affect your credit score, but there are certain factors that can have more of a negative impact than others.

Perhaps the most common factor that brings down your credit score is missing or late repayments as it presents you as a high risk for credit. This is also the same for those who enter sequestration or insolvency.

It’s often perceived that having multiple lines of credit is good for your score, but this isn’t always the case. It can also hurt your credit score to have little to no credit history, as there’s nothing on the report to build up a score from.

Your score can be affected if you’re not currently on the electoral register, too. Because the electoral roll proves your name and address to lenders, it boosts your chances of being accepted for credit.

There are some factors that won’t necessarily affect your score. Debts like your student loan or arrears on your rent or mortgage will only bring your score down if you have defaulted on it or it has been passed to a debt collector.

It is also a complete myth that your address has a credit score. If the individuals who have lived in your home before you have a bad credit score, this will not affect yours. This also goes for couples, with the exception of joint accounts.

What should I watch out for on my credit report?

We always advise that you check your credit report regularly. Even if you aren’t applying for credit, it’s important to check in on your credit report for any errors or missing information to help avoid financial issues later on.

It’s also important to check that your score has been updated. Once you’ve paid back a debt, it should show on your report as settled, but the credit reference agencies can take some time to do this so it’s worth double-checking before you apply for more credit.

What will happen to my credit score if I enter a trust deed or a Debt Arrangement Scheme?

It’s likely that your credit score will already have been affected if you’re struggling with debt, but entering into a debt solution can also have an impact.

If you get a trust deed or a DAS, it will be recorded on a public register which can be found on the Accountant in Bankruptcy website. This is then used by credit reference agencies to add information to your credit report, which will ultimately appear on your credit score.

It will remain there for around six years, although this may be longer depending on the length of your arrangement.

It is important to remember that once you stop your regular payments to your debts, creditors are able to register defaults on your report, which will ultimately bring your score down. The defaults will remain there for the duration of your arrangement and be updated to settled once it has been completed.

If you are struggling with your finances and your credit score is low, we can help. Contact us today to speak to one of our friendly, professional advisors for free and impartial advice.

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