A credit score is a numerical value that indicates an individual’s credit worthiness. This number is calculated by the three main credit reference agencies: Experian, Equifax and CallCredit. Every time you apply for a financial product, miss or make a repayment, the information is sent from the lender to one of the credit bureaus who update your score up or down accordingly.
The idea of a credit score is so that potential lenders are able to tell quickly whether or not you will be a good person to lend to and what rate you should be charged. For lenders that have a certain criteria, they can benchmark a specific credit score and anything below this will not be eligible. Lenders will also use a credit score to determine how much they should lend to a customer and at what rate of interest.
Check your credit score for free by using free trials from the companies we feature. Our comparison table shows a number of companies that offer free trials for up to 30 days and then you can decide whether you would like to continue paying the small monthly subscription fee to check your credit score or not. By signing up, you will be able to login into a dashboard to see your credit score and details of your financial transactions. During the trial, you will be able to monitor your score at any time, receive email alerts if there are changes or a lender searches your account.
Individuals with better credit scores are entitled to more favourable rates of interest because they are deemed at less risk of default. Especially for those applying for a mortgage, having a high credit score can get you a more competitive interest rate which can save you thousands of pounds over time. For this reason, UK consumers like to check their credit score regularly to ensure they maintain a high score and can get the best deals on all credit cards and loans.
People check their credit score when looking to build credit. If you have a poor payment history, you can rebuild your credit score by making a number of payments on time. So for those looking at a big purchase such as a car or a house, they will check their score regularly so that they can apply when their rating is at its highest.
On a similar note, since you receive your credit score when you are 18 years of age, you may not be eligible for certain loans because you have a limited credit history. Therefore, as a young person, you may decide to obtain small levels of credit such as credit cards and constantly monitor your score in order to build up credit.
Credit scores are divided up in five categories: very poor (0 – 560), poor (561 – 720), fair (721 – 880), good (881 – 960) and excellent (961 – 999), according to Experian.
A good credit score in the UK is 881 and above. This suggests that you have a good credit history or repaying your debts on your time and this should entitle you to favourable rates of interest for mortgages and credit cards.
The average credit score in the UK is 783 and this is categorized as fair. The average credit score suggests that you may have a lot of credit open at the moment and have a history of missing and also making repayments on your loans and credit card bills.
A bad credit score is any number under 720 and may be due to a number of reasons. For example, one’s credit score is likely to depreciate after missing consecutive monthly repayments for things like your mortgage, personal loans and credit card bills. Bad credit scores are likely to be common for those that have experienced bankruptcy or a County Court Judgment. Customers find a fall in their credit scores if they have made a number of loan applications in a short space of time, making them seem financially squeezed or if they have a large debt to income ratio.
Your credit score is made up of the following:
35% – Payment History: This refers to how well you have kept up with bills in the past including loans, cards and mortgages. If you have defaulted on loans or your account is in arrears, your credit score will be affected negatively as a result.
30% – How much you owe: This considers how much is outstanding to your creditors. If you are on top of your repayments, you will have a good credit score to reflect this. However, your score may suffer by 30% if you have a lot of debt outstanding, overdrafts and numerous loans and credit cards open.
15% – Credit length: The longer you have had credit and a good history of repaying, the better. If you have old accounts that are still active, you will be rewarded in your credit score. It can also be beneficial to close any unused accounts such as a store cards that you haven’t used in years.
10% – New searches: Any application you make with a lender is recorded on your credit report. The lender leaves a ‘footprint’ to signal that it has checked your account. This tells other lenders that you have applied for other sources of finance. Therefore, if you have made numerous applications in a short space of time, it will impact your credit score it may turn off lenders who think that you are desperate for funds.
10% – Types of credit: Some forms of credit are more positive for your credit score than others. Having a mortgage suggests that you are a good candidate to lend to because to be approved, you have to demonstrate a good history of credit. By comparison, high risk and high cost loans may lower your credit score as a sign that you could not find affordable credit elsewhere.