Having and maintaining a good credit score is a key part of handling your finances and will determine if you are accepted for credit, loan and mortgage applications. In the UK there are three main credit agencies which give your information to lenders when you make an application for credit. There is no universal credit score but each agency has its own scoring system.
The two main agencies are Experian and Equifax and their score range is comparable. Experian’s range runs from 0-999 and Equifax’s from 0-990. Any scores below 400 range from fair to bad, and will reduce your ability to obtain credit, whilst a score of between 400 and 475 is considered good. You should aim to have your score in the excellent range which is between 475 and 999. The third agency Call Credit is not used as often by lenders and has a score range of between 0-1500.
Your credit reports reflect both your financial stability and your handling of finances. Emphasis is placed on how long you have lived somewhere, if you are a homeowner or renter, and how long you have been in employment. It is very important that you are registered on the electoral roll.
Your credit score can be affected if you share financial dealings with a third party by having a joint mortgage or bank account. However living with someone or being married has no effect on your credit score unless you have joint financial dealings. If you are linked to someone with a bad credit report, this will work against you. If you split up with a third party who you were financially linked to you can request that a notice of disassociation is placed on your credit report.
Across the UK there is a common misconception that there is a credit blacklist. There is no such thing. Your report should be an accurate reflection of your finances but it is always best to check your reports to ensure that there are no inaccuracies recorded, particularly on your address or your payment history. Under the Consumer Credit Act everyone is allowed to request a copy of their credit report from each of the three agencies for a fee of #2.
Any inaccuracies on your report should be corrected but you can do this yourself and there is no need to pay a fee to one of the many agencies which advertise they will do this. Accurate information cannot be removed so if you have a history of default, bankruptcy or county court judgments they will remain on your credit file for up to six years. However if you did go through a period of missing payments you are allowed to have a notice of correction attached to your report to explain why your payments were missed. This information can then be taken into consideration by future lenders.
Paying all your bills on time and not holding too many credit cards has a major impact on your credit score. It is important that you do not make too many credit applications as lenders do not like this. If you have no credit history then the way to establish one is to obtain a credit card and use it in a responsible manner and always pay on time and try to clear the monthly balance in full.
This covers most of the key points you need to understand relating to your credit reports and score, and how they can affect your ability to obtain future borrowing.