What is my credit score and why do I need to look after it?
Wait, wait, don’t close your tab yet. Hear us out. Credit scores might be the last thing on your mind but it turns out they’re pretty damn important. Let Money for Life explain why you should keep an eye on your credit score.
Fine, what IS a credit score?
Your credit score is basically a number given to you to determine how reliable you are with money. This number can be generated by three different credit agencies: Equifax, Experian, and Callcredit, and each agency uses a different scoring system, so will generate a different number for you. You don’t have one universal credit score.
Still with us?
I think so, but don’t credit scores only matter with mortgages?
No. It’s a myth that your credit score only matters when you take out a mortgage or other large loan. Your credit score can affect you in a number of ways, including:
- Taking out a phone contract
- Applying for a credit card
- Applying for any loan
- Buying a car
- And, yes, applying for a mortgage
So, if you’re looking to agree set repayments with a company, like when paying your phone contract, buying a car on a finance deal, or taking out a loan, you need to have a decent credit score. The companies will check with one of the above three companies and if your credit score is bad, they are well within their rights to decline you.
Even if you don’t have to worry about your credit score yet, your actions now will still affect future applications requiring a good credit score, like buying a house.
Essentially, don’t forget about looking after your credit score like you did with your Tamagotchi. We know you left your Tamagotchi to starve. We know.
Sorry. Right, ok. How can I find my credit score to check it?
You have a legal right to view your credit report for a fee of £2 using any of the three credit agencies. To be thorough, it’s best to check them all but if you’re looking to take out a loan, for example, and know the credit agency the bank or company uses then it makes sense to at least check that one.
You can view your credit report for free using Callcredit’s free Noddle service, or you can sign up to Experian or Equifax’s 30-day free trials. You just have to remember to cancel before the 30-day period is up so you don’t get charged.
Oops, my score is pretty bad. How can I improve my credit rating?
If your credit score is bad, don’t panic. It doesn’t automatically make you a bad person or a prime candidate for application decline.
Of course, there could be obvious reasons why your credit score is bad. If you’ve missed repayments on a loan or can’t keep up with your bills, then your score will be low. You might find our articles on how to get help with your debts and how to manage your money helpful.
To have a good credit score, you need to be able to prove that you can meet repayments on time. If you don’t use credit cards or have never used a loan, it means companies don’t know how trustworthy you are with money, so any application for a future loan might be rejected on that basis.
If your credit rating could do with improving, try these tips:
- Register to vote to prove where you live, as companies will want to know. This is an easy one to sort.
- Pay some household bills in your name, even if it’s just for Netflix or your TV license. Prove you can take responsibility.
- Ensure you’re meeting repayments if you already have a loan. Set up a direct debit or standing order to make this easier.
- Apply for small forms of credit, like a credit card with a small limit or store card to prove you can be responsible. You don’t have to use them all the time for everything, but using them to make small, regular repayments can give you a boost.
- Close unused credit cards as companies may take into account the credit limits you have as well as missed payments. Have yourself a financial tidy-up.
Bear in mind, you can’t change your credit score immediately. Building it up will take time, but it’s worth it for the sake of applying for loans etc. in the future.
OK, there you have it. A quick guide to your credit rating and why it matters. You can go and do something super fun now.
You can also take part in our online training, giving you more information on credit scores.
- Find the latest deals and learn new money tips at Money Saving Expert.
- StepChange has a free online tool called Debt Remedy, which can help make you a debt repayment plan. They also have a free helpline and a live chat advice service. Call on 0800 138 1111
- The National Debt Helpline offers free, confidential and independent advice on debt issues. 0808 808 4000
- Go to Money Advice Service for free and impartial money advice.
- Call Money for Life's helpline for free on 0808 801 0666 to get the support you need on money, debt, benefits and more. Open 11am – 11pm every day.