What is a credit score and why is it important?
Your credit score is a rating , typically between 0 and 999, used by lenders and credit agencies. To them it represents the risk of you not paying back a loan. To you it is a factor in deciding how much interest you will be charged and if the application is accepted or declined.
It is important to be aware of your credit score because even a small change in interest rates, on for example a mortgage or car finance, can make a difference of hundreds or thousands of pounds over the lifetime of the loan.
What factors affect your credit score?
Your credit score is based on your credit report. Various different factors on your credit report can cause your credit score to change, including:
- Information on your credit report such as how much of your available credit you’re using and your total debts
- Your history of credit account payments
- Credit searches (when a credit application is made)
- Public records [electoral roll and county court judgements (CCJs)]
Simple steps to help manage your credit score
- Review your credit report and score regularly to ensure the information is correct
- Contact your lenders to correct any mistakes or outdated information
- Ensure you don’t miss any payments
- Close any unused credit accounts, as having a large overall credit limit may be viewed negatively by lenders
- Register on the electoral roll
The infographic below explains in more detail