Your Credit Score Explained

Your credit score is a number that the CRAs (Credit Referencing Agencies) put against your file for lenders to quickly assess how good ‘worthy’ you are to lend to or not!

In the ‘good old days’, to get a loan you would meet the bank manager and they would make their decision to lend based on lots of factors.

But in today’s world of ‘automation’ and minimising costs, lenders rely heavily on the financial information regarding their clients as a major way of deciding whether to lend or not.

Your credit score is a bit like an exam grade:

The higher you score 👍

The greater the numbers of lenders who will give you credit at lower interest rates

The lower your score 👎

You will be more restricted to ‘poor credit lenders’, who are more expensive

What Your Score Means

Experian provide a good explanation of their scores in the graphic below:

The score you will require for a new will vary depending on the specific lender; though many lenders do not just look at your score, they will also look at your file to see if it looks acceptable to them.

The Make Up Of Your Score

Your score is made of 5 categories:

1. Record of paying your bills on time (payment history) – the more history you can show making payments as you should, the better your score will be
2. Total indebtedness – how much you owe in total does affect your score, especially if they are balances being run on credit cards.
3. Credit mix – if you have a good mix of credit all with a good payment history this looks good and helps your credit score
4. New Accounts and Requests – if you make lots of applications without taking out new agreement, this looks bad and can reduce your credit score
5. Length of credit history – in the UK we can only see back 6 years on your file, but the longer you file is showing good payment history over a range of agreements, the better.

• For hints and tips about boosting your score, check out the following Money Saving Expert article – Credit Scores – ‘Bust myths & improve your score’: Credit scores: Boost your credit rating – MoneySavingExpert
• The Money Advice Service explores in great detail in the following article – ‘How your credit score affects the cost of borrowing’: How your credit score affects the cost of borrowing