When you apply for credit, the lender has to make sure that it would be responsible of them to lend you the money. This means that they have to be confident that you can afford the repayments and are likely to make them on time and in full.
To do this they will look at your application details, in particular your income, then review your credit report with the credit reference agency and add any other relevant information that they have to create your credit score.
Your credit score is more than just a number. It’s important in helping a lender decide whether or not you’ll get a loan, credit card, mortgage or mobile phone contract. In the modern world, practically anything that involves borrowing money or making regular payments can depend upon a credit score
It’s really important to look after your credit report, and your credit score, if you want any chance of getting credit.
Most lenders will look for a high, or good, credit score as this will show them that you have paid your past and current credit and are likely to be able to so in the future.
If you’ve managed to keep up with credit repayments in the past, your credit score should be high. But don’t forget that things like not being on the electoral roll and being linked to someone with a bad credit history can bring your own score down. And, having too much credit available to you can also be a drag on your credit score – remember to close or cancel any unwanted or unused credit cards
What a low credit score can mean
If you’ve struggled with money in the past, this can have a negative impact on your credit score. A credit history littered with missed payments, defaults or even county court judgements can mean your credit score will be low, but what does that mean for you?
Lenders calculate your credit score to check how reliable you will be as a borrower. The higher the score, on average, the more likely you are to repay your loans on time and in full.
So if you’ve got a bad credit history and a low credit score, lenders will take this to mean that you struggle to manage your money and repay your debts, which makes them unlikely to lend to you. Or, if they are able to lend you the money you are looking for, the lender is likely to charge you a higher rate than if you had a good, or high, credit score.
In short, failing to keep to the terms of a credit agreement - even just once – can make it more difficult, or more expensive, to borrow money in the future.
Your credit score can affect you more than you might think. Not only loans, mortgages and credit cards depend upon your credit file and credit score. Mobile phone contracts, car insurance policies, and any other form of borrowing money can be affected too. Even landlords can access your credit file and undertake a credit score to decide whether they want you as a tenant - so it really does pay to look after your credit profile and score.
Making sure your credit report is correct
As your credit report and credit score are so important, it can be worth your while to check regularly that it is correct. Lenders (and credit reference agencies) can make mistakes when registering your information. You can also identify areas where you can improve your credit score – cancelling unused credit cards for example.
When you check your credit report, take care to go through line by line and make sure that everything is correct. Sometimes there might be an error or discrepancy on your credit report, so it’s important that you get this sorted as soon as you can.
If you spot an error, you should contact the relevant creditor or lender and ask them to correct it. If they find it to be a genuine error, they are required to update their records, as well as the records held by the credit reference agency that they deal with, within 28 days. If you find any errors on one credit report, it’s advisable that you check it with the other credit reference agencies as well to make sure they’re all correct.