Les Roberts: If you’ve ever been rejected for any type of credit – from a credit card to a mobile phone contract – you’ll appreciate just how important a good credit score is.
The reason it is so important is because when you apply to borrow money, the lender will use your credit score to help assess how credit worthy you are and whether you’ll be able to manage your debts – basically the higher your score, the more likely you are to be accepted for credit.
But what makes a good credit score? Well that partly depends on who you speak to.
In short, there are three main credit reference agencies – Experian, Equifax and TransUnion – all of which hold information on how well you have managed your past debts – for example, if you have missed or made any late payments. It will also show whether you are electoral the roll, court records, previous addresses and fraud data to arrive at a total score.
When you apply for credit, the lender will look at the information provided by at least one of these agencies and use it along with its own credit rating system, before deciding how whether to accept your application and, if so, much it will lend you.
The good news is this means there is no universal credit score per person – nor is there a so-called credit black list, so rejection from one lender doesn’t necessarily mean rejection from another.
The bad news is that multiple applications, not to mention rejections, can adversely affect your credit score – so it’s a good idea to check your credit file before applying for credit, keeping in mind that, with anything less than an excellent credit score, you are unlikely to be accepted for the best deals.
The Consumer Credit Act gives you the right to obtain your full statutory credit report at any time at a cost of £2 per report, so the total outlay should be no more than £6 even if you want your report from all three.
If you spot a mistake on your file, you should contact the relevant agency and ask for a Notice of Correction, explaining why it is wrong and supplying any appropriate supporting evidence.
And information doesn’t stay on your report forever – a missed credit card payment will usually be wiped off after three years, while details of a County Court Judgement or bankruptcy will normally hang around for six years.
If you only make the minimum monthly payment on your credit card each month, or if you’ve maxed out all your credit lines, this will also have an adverse effect on your score.
It’s not all about poor debt management though, if you’ve never borrowed money in the past and have a very limited credit history or none at all, this can also count against you as it gives lenders very little to go on when making their decision.
It still goes without saying though that the best way to improve or maintain a good credit score is manage your debts well, don’t miss monthly payments and stick well within your credit limits.