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What is a Credit Score?
Responsible lenders want to know that you can comfortably afford to manage any new borrowing, so they calculate a credit score that helps them to assess the chances that you will be able to repay what you owe.
To do this, they take information from two main sources — your credit report and your credit application form. If you are an existing or past customer, they will also use their experience of how you’ve managed repayments in the past.
The Information They Use
When you apply for credit, lenders can request data such as your salary, how long you’ve been in your job, whether you are a homeowner and how many dependents you have.
Key items in your credit report include your credit accounts, your repayment history, recent applications for credit, whether you have missed repayments in the past, taken out an Individual Voluntary Arrangement (IVA) or been bankrupt even whether you are registered to vote. You can see your credit report for free with CreditExpert.
Calculating a Credit Score
Lenders allocate a value to items from your application and credit report, using a formula based on past and industry experience of other borrowers who have a similar profile and/or have taken out the same form of credit. The total is your credit score, also known as a credit rating.
Credit scores are a single number, usually between 0 and 1,000.
- A high credit score usually represents a low risk that repayments will not be made.
- A low credit score suggests a higher risk that an account will fall into default.
Therefore, in general, a higher credit score makes it more likely that you’ll be able to get the deals you want. A low credit score, on the other hand, may make it difficult for you to get credit or mean that you will pay higher interest rates.
There is no Magic Number
Just as lenders use their own formula when calculating a credit score, they also set different thresholds for accepting an application. These thresholds can also vary according to the type of credit you want, so you could be accepted for an electricity or mobile phone account, but have a request for a car loan rejected.
Do your research before you apply. Check your credit report in advance. Make sure it’s as up to date as possible and you stand a better chance of scoring well enough to get the deal you want.
How Well Will You Score?
You can find out by getting your free trial of CreditExpert today, where you’ll get free alerts and advice on improving your credit rating.