Credit scores

Understanding your credit score

Matthew Harris, Principal, explains how to understand your credit score and how it can affect your ability to borrow

Why is your credit score important?
A credit score is basically an indicator to lenders based on your past financial behaviour. In essence, it is a risk-based assessment of how you will behave in the future. It gives you a ‘score’ between 0 and 1000 – the average score in the UK was 767 according to thismoney.co.uk in 2019. If you're applying for a mortgage your credit score will be checked by the bank or lender.

There are four credit rating agencies:

• Equifax

• Experian

• TransUnion

• Crediva

They all collect information from your bank, the electoral role and utility companies to create your credit score. Most credit reference agencies let you see your score for free, but many will charge to share the details of exactly what is driving the score. That said, if you check your score before you apply, you may be able to proactively make changes to improve your score.

Here are few things you can do to improve your rating:

1. Get on the electoral roll

2. Use a credit card
   •its very important to clear your balances at the end of each month – it proves you're a trustworthy borrower without paying any interest.
   •don’t have large amounts of unnecessary available credit. Having a credit card with a £10,000 limit can actually work against you, even if you don’t use the card. The reason for this is that the lender could be concerned that you’ll use this credit in the future and be unable to meet your mortgage commitments.

3. Pay all your bills on time
   •Set up a Direct Debit rather than paying manually each month and you’ll never miss a payment again!