We all know that credit scores are important – but what are they and how can you influence yours?

What are Credit Scores

Whenever you apply for credit, data is collected on your past financial behaviour so the lender can see what sort of a borrower you are.  The data looks at factors such as how quickly you paid back what you borrowed before, whether you have any outstanding debt and such like. 

The application form is a key source of data for the potential lender.  Making sure this is filled in correctly, fully and honestly is important. 

There are 3 main credit reference agencies in the UK that lenders refer to in determining the degree of risk you represent:  Equifax, Experian and TransUnion (previously called Callcredit).  You can apply online to them to see your credit file but there is usually a cost for this.

Most data they hold will go back 6 years.  The key data is summarised as:

• Electoral roll: confirming where you live
• Court records: any court appearances concerned with debt, bankruptcies and County Court Judgements
• Other lenders who have searched your file
• Financial associations, where you may have had a joint credit agreement, such as a credit card with a partner
• Fraud
• Credit behaviour with banks and building societies, including any loans, mortgages, bank accounts and credit cards.

How to improve your credit rating

There are many ways to do this, but the main top tips are:

• Check your credit rating files before you apply for credit as there may be errors on the files which can be corrected before you send off the application form
• Make sure you are on the Electoral Roll by registering to vote
• If you’re not eligible to vote, send all 3 credit reference agencies proof of residence (such as utility bills)
• Don’t make late payments on your existing credit
• If you separate from someone you had joint finances with, tell the credit reference agencies so your finances are no longer linked
• Don’t make too many credit applications as many applications makes it look like you are needing the money
• If you are rejected, check the credit files to ensure the information they hold is correct
• For many more ideas, check online such as here.