How much do you know about credit scores? Everything? Just enough? Hardly anything at all? We’re all likely to offer different answers to that question, but it’s important that we have at least a basic understanding of the concept and how it works.
For example, a recent Dot Dot Loans study of more than 1,000 people found that almost 1 in 10 believed it was of no benefit to know their credit score, and one-third were not aware of all the agencies that receive information about their credit file.
With that in mind, here’s some need-to-know information about credit scores, what affects them, and how they can be improved.
Why is a credit score important?
If you’re thinking about applying for finance, perhaps in the form of a short-term loan, a long-term loan, a credit card, a mortgage or any other product, having a poor credit score may be detrimental to your chances of being approved. It’s a vital part of ensuring your financial picture is looking as healthy as possible, so you need to check your score regularly in case there have been any mistakes which might be holding you back.
How can you check your credit score?
You can check your score for free with a number of credit reference agencies (CRAs), such as Experian, Equifax and TransUnion. Those three CRAs also offer a more comprehensive service, which requires you to pay a fee. Dot Dot Loans survey found that around 12 per cent of people believe that checking your credit score will affect it negatively, but this is not the case. It will have no impact.
What does impact a credit score?
These are some of the things that can have a negative effect on your credit rating:
- A County Court Judgment
- Being declared bankrupt
- Missed credit card payments
- Not being registered to vote at your current address
In the Dot Dot Loans findings, it stated that only 44 per cent knew that all these terms impacted your credit score.
What has no impact on a credit score?
There are plenty of myths around credit ratings and what may or may not have a detrimental effect. Rest assured that none of the following will have an impact:
- Council tax arrears
- Car parking or driving fines
- Student loans with the Student Loan Company
- Claims for PPI (Payment Protection Insurance)
How can you improve your credit score?
Please be aware that different agencies use varying scales to measure your score, so it’s important that you understand the context of the number you see when you perform a check. Here are some of the things you can do to try to help enhance your credit rating:
- Set up direct debits to pay your bills in full and on time
- Get your name on the electoral roll and register to vote
- Try to avoid applying for multiple lines of credit at once
- Be savvy with your credit usage. For example, try not to max out your credit card each month
Hopefully now you will have gained a greater understanding of the basics around credit scores, and you’ll be able to make more informed financial decisions in the future.