How Does Credit Scoring Work?

We often see things about our credit score and that it might have an impact on us. It is a good idea to have an understanding of how it works because then we will know what we have to be aware of if we want to improve our score.

What is a Credit Score?

Your credit score is something that comes about as result of someone looking at your credit report. Usually it will be a potential lender or landlord that will look at this. They will want to see whether they feel you are responsible and whether they can trust you to make the payments necessary for a loan or rental agreement. They will look at a lot of things in order to decide this. The credit score is not something that is standardised because each lender has a different method of doing it. This means that you cannot see it and you cannot find out what you will need to do to change it because different places will have different ideas on what you can do. This can make things a bit complex but there are general things that you should be able to do which will help. Things that will worry someone looking at your credit rating will be CCJ’s for unpaid debt, lots of recent loan applications (particularly rejections). How much you owe and what different loans you have had and if you have made the repayments.

How Can I Change Mine?

What you need to do will depend on your current credit record. Take a look at it, you can do this for free and it will help you to identify any errors to start with. This is really important because you might be being discriminated against for errors. Then look at what potential problems might be. It might be unpaid debt in the past. You cannot change the past but you can make sure that everything now gets paid and show that now you are more responsible. If you have had no debt, it can be hard for you to get any and this is a tricky situation to be in. One thing that could help you is to take on a credit card. Use it sparingly and set it up so that you repay the full balance each month and this will prove that you are responsible and can be trusted. Of course, if you miss a repayment, then this will work against you, so you need to be extremely careful and keep a very close check on what you are spending and ensure you always pay it off. This means the whole balance too, not just the minimum payment as otherwise you will be charged interest and you do not want to pay this. If you have joint accounts or bills with someone that has a poor credit record then you will be associated with that. Therefore, try not to have your name on anything with them (this includes mortgage, bank account, loans and some utility bills if you are named as a couple). Fortunately, sharing rent will not work against you as lenders realise that many people do not have ties with their housemates. It can also be wise to try not to apply for things and then get turned down. You will find that if a lender can see that you have been turned down, they may reject you immediately without even looking in to why. Therefore, try to check first as to whether you are likely to be accepted. There are also some things that potential lenders (particularly mortgage companies) see as poor money management and will automatically reject you if they see them and these include payday loans and withdrawing cash on a credit card and so be very wary of these.

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