What is a credit score and why is it important?
The average UK credit rating has risen slightly lately, peaking at 383 with Equifax and 759 with Experian towards the end of 2021.
While these numbers may seem relatively innocuous and meaningless on their own, your credit score is extremely important as you get older. Specifically, it directly impacts your ability to find credit and get a mortgage, while also influencing the type of mortgage products and rates you can access.
But what exactly is a credit score, and what happens if yours isn’t deemed adequate by lenders? Let’s find out!
What is a credit score?
There are three main rating agencies in the UK; namely Equifax, Experian and TransUnion.
Although each agency uses slightly different measurements and operations when calculating your precise credit score, this number is actually derived from your financial behavior and designed to showcase your reliability and loyalty when borrowing money.
This helps lenders quickly and efficiently assess your suitability as an applicant, while making more informed decisions that benefit both them and individual clients.
Typically, your credit score is also backed up by a more detailed report, which lists all of your current credit and household accounts, their balances, and a six-year payment history. This data can also be used to make lending decisions, while your score offers insight into your credit history.
Where can I find my credit score?
There are many ways to find your credit score, with the market recently expanding to include free access platforms such as Credit Karma and Clear Score.
These platforms provide their own scoring metrics and provide basic reporting data, without requiring you to pay a one-time or monthly fee.
However, you may be better served by reviewing your credit score and data through an official agency like Experian, Equifax, and TransUnion. After all, these platforms are also used by lenders, so you can get a more accurate and meaningful insight into your credit score and proceed accordingly.
In most cases, you will be able to view your credit score for free through these platforms, although you must pay a nominal fee to view more detailed information and a full report.
What to do if you have bad credit?
As we’ve discussed before, having good credit and a clear understanding of your score is very important, especially as you get older and want to get a competitive quote for a mortgage, car finance, or take out loans and credit cards.
But what do you do if you have bad credit? First, you will need to take practical steps to improve your credit score, by removing stale debts, settling outstanding debts where possible, and making all subsequent payments in full and on time.
Second, it is beneficial to create positive credit transactions in the future, without opening too many cards to apply for multiple loans. This is where bad credit loans come in, with specialized options like student loans for those with bad credit available online.
Depending on your credit score, it may take a few years to restore your credit score, but it’s never too late to start this process and improve your eligibility in the eyes of lenders.