Your credit score is an important part of your finances – here we’ll show you the basics of it, plus why you should be keeping an eye on it.
Understanding the basics
What’s a credit score? It’s literally that – a number representing how risky it is for a company to lend money to you. This might be through a credit card, loan, car payment or mortgage.
In general, the higher the score, the better. A high score means the risk of lending to you is low, so a lender is more likely to approve something you’ve applied for.
Credit scores are based on your payment history – how you’ve managed money and credit in the past. If you’ve regularly been late paying bills or other debts, it might make your score lower.
There are 3 main credit agencies in the UK – Equifax, Experian, and TransUnion. Each one has a different scale so there isn’t a set number that’s good or bad, it depends on which one you get your credit report from.
Your credit score and financial opportunities
Get on the housing ladder with a good credit score
If you’re looking to buy a home, your credit score plays a huge role. You’ll have a better chance of approval, but you could also get a lower interest rate – potentially saving you thousands of pounds over the life of your loan.
Leasing a car, and other payment plans
A good credit score is more likely to let you lease a car or get a loan for one. You might also be able to take advantage of payment plans, where you pay monthly for something like a new phone or television.
Employment and rental applications
Your credit score can affect other aspects of your life. Some employers check your credit as part of the hiring process, especially for positions involving financial responsibility or access to sensitive information. A strong credit score can give you an edge in the job market. Find out more about employment and credit checks.
Also, landlords often do a credit check for renting. A low credit score might stand in the way of your dream place, or you could end up paying a higher deposit to secure it.
Building and protecting your credit score
So, what’s bad for your credit score?
- Missing payments regularly.
- Maxing out your available credit. A good rule of thumb is to use less than 30% of your available credit.
- How long you’ve held your accounts? Credit reference agencies look at how long you’ve held accounts. If you switch a lot, it might bring your score down.
- Not using credit at all. While you should always be responsible with credit, if you’ve never used it, it’s difficult for credit reference agencies to tell how reliable you are.
- Joint accounts with someone who has a poor credit score.
Pay your bills on time
Consistently paying your bills on time will build your credit score – even better if you can automate it through Direct Debit so you don’t have to think about it too much.
Lots of utilities and phone companies have their own apps where you can log in, pay bills and manage your account in general – like this one from Utility Warehouse (UW App).
Keep an eye on your credit
It’s always wise to know what your credit score is, in case there are errors or signs of identity theft that make it lower.
You can get free credit reports from the three main credit reference agencies – Equifax, Experian and TransUnion. When you check your credit, it won’t affect the score. It’ll appear on your credit report as something like an ‘admin check’ but lenders won’t be able to see it.
Some banks have this function within their apps – if you use an app, check the options there or ask your bank.
