Understanding your Credit Score
Getting a handle on your finances can be difficult but the more you know the better a position you will be in. Whilst facing your credit score may seem daunting, it doesn’t have to be and it is just one small part to being in control of your finances. So what is a credit score?
A credit score is the same as credit rating and credit rankings. It is just another term used to describe the scoring system used by companies to assess your credit history and potential in the near future. Banks and credit card companies use this score to assess the level of risk associated with given money.
Your credit score can be affected by many things both in a positive and negative way. It is how you manage the factors in your life and household that will manage your score.
A most common factor affecting a credit score is that you simply do not have a credit history. This is the case in many circumstances where there is no record of you making payments or paying bills. This is the case in circumstances where someone is new to the UK or has just moved out of a parent’s home, such as students. Since they have no credit history this makes it harder for lenders to decide if they are taking a risk in lending to someone. One way to improve this is to start paying bills in your name such as phone or electricity bills.
Late payments can have a severe effect on your credit rating, as creditors will look at the failure to pay on time to others as an unwarranted risk on them to do the same. If possible, link any direct debits to come out of your accounts to when you know you will have money there.
Having too many credit cards can affect a credit score in that some companies will take this as an indication that the person is unable to accurately and safely manage their finances. This can be resolved by consolidating several accounts into fewer with lower interest rates or paying off and shutting down unused and unnecessary cards.
Lastly Bankruptcy will severely affect a person’s credit score in a negative way. How far a persons credit score will fall if a bankruptcy order is made will depend on their existing score immediately before they are made bankrupt. Due to a person being unable to pay their debts and using bankruptcy as opposed to other options such as IVA’s or Trust Deeds their credit score will be diminished for years to come. One way to build this back up is when out of bankruptcy to clearly and effectively manage their finances for companies to review.
Whilst there are a lot of things that can effect a person’s credit score such as bankruptcy and sequestration other more common factors do not have an impact on how companies view you and your suitability for finance.
Whilst we said earlier that it is common for younger people to have a bad credit score due to a lack of history of payments this is nothing to do with your age. It is a smart idea to try and pay your own bills rather than using your parents if possible as this starts building you a credit score and helps set you up for future finances.
Bank savings are not taken into account on your credit score so any savings accounts will not appear onfile as they are not a credit related product.
Outstanding student loans are not taken into account when researching your credit score. Your student loans will only be taken into account into your credit score if you have defaulted on the repayments of these like any other type of loan.
There are many places in which a person can look in order to check their credit score, the main ones we suggest that are used by people and companies are Equifax and Experian. These sites use your previous purchasing and payment history as well as pulling together other data on you to determine a score which companies then buy in order to assess your suitability for finance. Individuals are able to check their own score as well from these companies to give themselves an overview of their standing and where to go from there.
If you take the step to check your credit report here are some things you should look for to see how you can improve them and be able to be the ideal customer in a company’s eyes. The biggest thing to make sure when you check your credit score if that the details are correct. Any discrepancies will alter your chances for business’ to give you credit so it is important to make sure these details are accurate. If you find mistakes the best thing to do is to contact the firm itself and explain what is incorrect. Examples of incorrect information in your credit score can be bank charges that were settled, exact figures and timing’s of charges that were imposed.
If you are struggling to repay your debts and have missed payments, it is likely this will already reflect in your credit rating. The Trust Deed itself is not on your credit file. However, once payments are stopped creditors can register a Default Notice which will remain on your file for up to 6 years. Once discharged, these notices should be marked as partially satisfied or fully satisfied. Default Notice is a letter from a creditor advising that payments have been missed on the account, this is normally during 3-6 months into the arrangement. It can be identified by the following statement at the top of the default noticed serve under section 87(1) consumer credit act 1974. It will allow a period of 14 days to bring your account up to date or the default will register.
If you are struggling to repay your debts and have missed payments, it is likely this will already be reflected in your credit score. The IVA will appear on your credit file for 6 years, At the end of your IVA we would suggest that you contact the credit reference agencies to ensure your IVA is now complete.