Credit scores (also called credit ratings) help lenders make decisions. When you apply for a loan, mortgage or other credit, lenders don’t just look at the information you provide. They also ask one or more credit reference agencies to check your credit history. That helps them determine whether or not to provide the loan.
Here’s how your credit score is put together:
Agencies will also normally report on payday loan activities, and whether there’s any record of fraudulent activity against your name.
Once all the information has been received, lenders allocate points according to their own systems and preferences. The total number of points is your credit score.
It’s not only about risk assessment. Naturally, lenders want to know if you’re likely to be able to repay any credit offered. However, they also want to know if you’re likely to be a good customer for them. So they’re looking for information about how you manage credit card repayments, for example. Or whether you’re likely to be a customer for the other products they have to offer.
While you can legally request information on your credit history form lenders, customers are unable to compile or calculate their credit score independently. This is carried out by Credit Reference Agencies (CRA’s), of which there are 3 in the UK: Experian, Equifax or Callcredit. CRA’s compile and hold your credit and employment history along with public records, including the electoral roll and court judgments.
It is important to note that the maximum scores differ for each agency. Equifax is scored from 700, Callcredit from 710 and Experian’s out of a maximum of 999. This is only due to the individual lenders, as not all report to all three agencies. This will not affect your overall credit rating.
Most agencies are free to use or have a free trial period; however, do be aware of ongoing monthly subscriptions or any paid add-ons after your free trials. There are also free for life credit reports available from Equifax (Clearscore) and Callcredit (Noddle).
Credit scoring is based on past borrowing, but it is also wise to think about how you use credit now. Lenders want to know how you’re likely to behave, and they’ll get the best insights if they have both recent information (6-8 weeks) and historical information.
There are a few things you can do to improve your credit score:
The following information doesn’t appear in your credit history:
Remember though, if a lender asks you about any of the above on an application form, you must answer truthfully. The lender will be able to check your responses.
Even if you don’t have a history of bad debt or missed payments, there are other factors which can negatively impact your credit score.
Lack of Financial History
While you may think this would be positive, no history means no evidence of your suitability. If a lender cannot prove you to be a responsible borrower, you may be declined. This can be problematic for those who have just arrived in the UK or for those just starting out.
If you move home on regularly, lenders can be sceptical of your financial stability as they may not be able to locate you if you miss payments on your loan.
Credit Report Errors
Any mistakes can seriously impact your credit score, even if you think they are trivial. Suspicious activity could be indicative of identity fraud or appear as an attempt to mask bad debts. You should aim to check your credit score annually and resolve any errors as quickly as possible.
If you hold accounts with several banks or building societies, this can suggest you borrow more than you can manage. Try to close unnecessary accounts and consolidate all debts into an easy to manage, low-interest credit card with regular payments to boost your credit score.
If you feel you are ready to start your loan application, try our loan calculator to estimate your monthly payments.
There are many factors which influence our decision regarding whether or not to accept a loan application. These factors may include:
Please note: This list is not exhaustive. These factors help us assess how affordable the loan would be to ensure we continue to lend funds in a responsible manner.
Each applicant must meet the following criteria:
All loans are subject to status. The interest rate offered will vary depending on our assessment of your financial circumstances and your chosen loan amount. The rate offered may differ from the Representative APR shown.
It is important you complete your application with accurate information, so before you start you should have the following details available for all parties: