Money talks: why it’s essential that you know your credit score

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The world of personal finance can be a bewildering place. Do you understand about credit scores and have you ever looked at your own credit file? Before you start glazing over, you should know that this is actually really important stuff to know whenever you need to apply for credit. Here’s a useful explanation of what your credit score means, written in plain English by financial expert Guarantor Loans UK.

Your credit score not only affects the likelihood of being able to get a major loan such as a mortgage or car finance, it can have an impact on whether you’re accepted as a tenant, if you can get a credit card or a mobile phone contract. Whether you like it or not, your credit file is integral to pretty much everything you do.

So, how do you get hold of your credit score?

How is your credit score calculated?

The job to gather information about your financial history mostly falls to three main credit reference agencies (CRAs): Experian, Equifax and Callcredit. Each CRA is sent information by your lenders about any credit you have and how you’re managing your repayments. Additional information, such as electoral roll registration data, is also sent to the CRAs.

Based on all the information received, each agency will compile the data to generate a credit report on you, which shows how good you’ve been at personal financial management in the past and how well you’re dealing with any money commitments you currently have. From this information, your credit score is calculated to indicate how great a risk you represent, if a lender were to give you credit.

Lenders, in turn, will ask one or more CRA to provide them with information on your credit rating to help them decide whether or not to accept your credit application.

Why are there different credit scores?

Your credit file will be compiled by each of the three main credit reference agencies, but your score will be slightly different each time. That’s because not every lender reports to every CRA – some will provide data to one or two CRAs, while others will report to all three agencies, some will add other, smaller CRAs too.

What’s more, each agency has a different rating systems. Equifax uses a score out of 700, Callcredit ratings go up to 710, while Experian’s scale is from 1-999. Confusingly, this could mean that your score could be quite different for each one, but don’t worry, as long as all the information is correct your credit worthiness won’t be affected.

What’s the best way to check your credit rating?

To get the full picture of your credit worthiness, it’s essential that you familiarise yourself with your credit score. This is particularly recommended if you’re thinking of making an important financial application such as for a new credit card, a new car or a mortgage.

It’s a good idea to check all three main credit ratings. Every CRA has a statutory duty to share your data with you – you can ask them in writing or access your credit file online for a one-off report which will cost £2. Alternatively, you can access your information via various credit companies, many of which offer a free service:

Experian

  • Sign up directly with Experian to see your free credit score, however there’s no access to the full report.
  • CreditExpert will give you access to your Experian score and the full report for £14.99 per month after a free 30-day trial.
  • Join Money Saving Expert’s Credit Club for access to your Experian credit report and score at no charge.

Callcredit

  • Sign up with Noddle for free access to your Callcredit report and credit score for life. A number of paid add-ons are also available.
  • TotallyMoney takes your Callcredit data and gives your live credit score, full credit report and personalised updates, totally for free.

Equifax

  • Go direct to Equifax and obtain your credit report and score free for 30 days, followed by £7.95 per month thereafter.
  • ClearScore will give you access to your credit score and report based on Equifax data, entirely free of charge.

Finally, CheckMyFile prides itself on being the only company supplying multi-agency credit reports compiled from all 3 CRAs, plus a fourth one: Crediva. The service is free for the first 30 days, and costs £14.99 pcm thereafter.

Once you’ve checked your personal credit file with each of the CRAs, you will have a good overview of your financial situation. Use this as the benchmark to slowly but surely make improvements to your credit rating. It’s advisable to continue checking your credit report and score on a regular basis to see if you’re on the right track for an excellent rating.

Can the CRAs be trusted with the data?

All credit reference agencies are independent bodies – they don’t own your data. Rather, it is their role to hold the information acquired from lenders and public records, and to share it with financial establishments for the purposes of assessing a credit application made by you.

The data is updated every month or so with information provided by lenders and any other company that has a financial association with you, such as banks and building societies, utility companies, letting agencies, credit card companies including store card issuers, mobile phone operators and so forth.

All your personal information is protected by the 1998 Data Protection Act, now superseded by the new GDPR legislation. This means that your permission is required before anyone else can access your data. Checking someone else’s credit record is strictly prohibited.

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