When you apply for a loan, a mobile phone contract or a mortgage, the lender will check your credit file for your credit score. This will give a lender a good idea as to whether you are responsible with money and help them decide whether to give you credit or not.
Lenders get their information about you from a credit agency. These are independent companies who collect the financial information about you from the lenders you deal with and make up your credit file. The information is given to lenders who want to know how good you are at managing your money. They also help consumers to keep their records up to date and accurate. Most lenders share the information they have between the three main credit agencies in the UK: Callcredit, Equifax and Experian.
Each agency has a different method of working out your score with most scoring indicated by a numerical scale. Equifax for example, start at 1 and end at 999. If you have a high score then your credit rating is good.
The top score for Experian is 961 to 999, that’s ‘Excellent’. Then it goes down to ‘Good’ at 881 to 960 and then to ‘Fair’ at 721 to 880. After that, there are two other scores; ‘Poor’ and ‘Very Poor’. Callcredit, however, has a numbering system from 1 to 5. The worst score is 1 and the best is 5, the latter means you’re unlikely to be refused credit. If you have a score of 3, you may be rejected by some lenders. 1 and 2 are poor credit ratings and, with these scores, it will be difficult to obtain credit at good interest rates. As you can see, your score won’t be the same for every lender which is why sometimes you’ll be rejected by one and accepted by another.
You can get a copy of your credit file from the credit agencies and, because each one is different, it’s best to get your file from all three. The file doesn’t give you your score, but it does give you enough information for you to form an idea. You can get your file free from Callcredit and by paying £2 to Experian and Equifax. If you want your actual score, the credit agencies will charge you a monthly fee. They do offer a 30-day free trial but if you want to sign up you’ll need a credit card. Simply fill out the form online and wait for your report and score. As soon as it arrives, make sure you cancel the subscription, otherwise, you will pay around £15.00 for the report and the credit agency will continue to bill you monthly until you cancel.
When you take out a credit agreement, a mortgage, ask for a loan or a credit card your credit score will be checked. In many cases, landlords use your credit score to decide whether you are financially responsible enough to become tenants. So, it’s always an advantage to have a good score. A lender will view someone with a high score a much better risk than someone with a low score, who might not be good at handling finance. Lower interest rates are also an advantage. Many people with poor credit ratings are only offered loans at high-interest rates, which are known as poor credit loans. Lenders tend to give larger loans to people with a good credit record. You may also find that your insurance premiums are lower and you’ll be asked to pay a smaller sum for a deposit on a credit agreement.