Understanding your Credit Score

To many millions of us here in the UK our credit score and our credit reference file remains a resource which is completely beyond our understanding. Not only are there different agencies who report our score, who do so with different scoring systems, there is no ‘set’ rules over who and how this information is used day in and day out. The fact of the matter is understanding our Credit Score can feel a little over-whelming. Given the fact that our credit scores are more important than ever, thanks to our increasing use of credit based facilities, now really is the time to learn to understand and monitor this resource. A recent BBC news report shown during their morning show demonstrated that the vast majority of individuals asked on a high street, did not understand the facts which surround the Credit Reference Agencies. One such example is that many of the consumers they asked believed that checking your score, on a regular basis, actually damaged your score; a belief which is completely untrue. It would seem then that many of us are simply unaware of the basics when it comes to the ins and outs of our credit score and the companies who generate them. With this in mind, let’s take a look at some of the ‘need to know’ facts for even the most confused consumers amongst us.

First and foremost, if you do not understand your Credit Files, Credit Scores and their effects on our financial future; you are not alone. Noddle, a credit score viewing service states that they have 2 million users today, yet compared to the population of the UK this translates to a small percentage of people. Many people feel a sense of stupidity in not understanding their score and there is absolutely no reason to do so based on this fact alone. In reality, it would seem that common misunderstanding surrounding credit scoring have led to consumers believe they are simply easy to avoid than consider as a useful resource. The truth is however understanding and monitoring your credit score could open up positive future financial possibilities and for all of us, this can only ever be a useful tool.

Let’s start then with the basics. First and foremost, you do not have a single Credit Reference File or Credit Score and in fact there are several different organisations who accumulate your credit performance and then provide what they deem to be a rating or score. This means where one potential lender may view several of your files, another may review only one; so there’s plenty of room to shop around because no one in the UK has a universal credit score. Each of the Credit Reference Agencies, as mentioned above, assess and score you differently and this means it is entirely possible one will ‘rate’ you different to another. The good news is that potential lenders know this fact and are wise to taking a rounded view. Equally potential lenders will consider entries within your file differently, depending on the current day resource you are requesting. This means in many ways your Credit Score is somewhat open to sensible and logical interpretation on the part of lenders. It is also true to say then that where there is consistent and repeatedly poor performance in terms of credit commitments shown in your file, there will be a negative score and effect on your ability to obtain credit; having no credit is actually just as bad. That’s right, never using credit and effectively never borrowing and repaying money, will mean that your score is likely to be poor also. Whereas for many of us sensible spenders this may seem illogical, that’s actually often the very nature of a Credit Reference File. So where continued and unrealistic borrowing is never advisable, maintaining a credit card on a monthly basis, clearing the balance on a regular basis, may actually improve your overall score.

The great news is there are plenty of free tools available which will allow you to view your Credit File, completely free of charge. Equally there are services which require a fee but as Martin Lewis has explained in one of his brilliant money advising discussions, the true value of paying is very difficult to quantify. Instead, maintaining credit commitments as they are set out to be and ensuring your files are reflective of actions made, will in the long term result in a positive score and therefore positive financial future.

Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

Warning: Late repayment can cause you serious money problems - For help, go to moneyadviceservice.org.uk

This article is not intended to contain information about, or advertise, products offered by us but is intended to contain information, give opinions or discuss generally available products/services.

Author: Internal Customer Services Agent