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Understanding your Credit Score

Facing up to money problems can be difficult, but the more information you have, the better decisions you can make about tackling your debt.

One of the main things that being in debt will affect is your credit score. You can find this out for free online in just a few clicks along with your entire credit history.

But what does it all mean?

Our guide will explain just how it works and what it means to help give you a better understanding of the three-digit number that is your credit score.

What is a credit score?

Also known as your credit rating, it is a file created by third parties to show to credit companies how good you are at borrowing money and paying it back.

It will include things like:

  • How much debt you are in overall
  • Details of any debts that are unpaid
  • Details of any defaults
  • The amount of credit you have available, for example available credit on your credit card

What impacts my credit score?

Your credit score is basically a mixture of separate scores added together based on times you’ve borrowed money in the past.

For example, if you have a lot of debt and a history of defaulting, your score will be on the low side. If you have a history of sensible borrowing and always clearing your debts quickly, your score will be higher.

How you handle your household costs will also have an impact. For example, if you’re always late paying your council tax or gas bill, this will impact your score.

Things that may damage your credit score include:

  • Bankruptcy
  • Insolvency
  • Not being on the electoral register
  • Late or missed bill payments
  • Access to a high level of credit, for example having multiple credit card
  • Having no credit history, for example if you’ve just moved to the UK or have just moved out of your parents’ home
  • Regularly checking your credit score or applying for credit

What doesn’t affect my credit score?

There are some things that, although often believed otherwise, don’t affect your credit score, including:

  • Student loan debt (unless you’ve defaulted)
  • Rent arrears (unless referred to a debt collection agency)
  • The credit score of your address – it’s a myth that moving into a home where the previous occupants had a bad credit score can affect your own score
  • The credit score of your spouse or partner, unless you have shared bank accounts or loans

Where can I check my credit score?

There are three main credit reference agencies in the UK – Equifax, Experian and Call Credit – all of which offer some form of free check, but they are only free for a limited amount of time. There are several free online websites where you can check your score, however these may not always be as accurate.

Free credit checks are convenient, but it’s important to remember to cancel your subscription unless you want to keep access to your details.

What should I look for on my credit report?

It’s important that you check your report often. When you do, you should look out for the below points:

  • Mistakes – any debts or missed payments that aren’t yours. You can question these with the agency holding the information.
  • Missing or incorrect information – double check your address history and look for details of accounts that you’ve closed but still show as being open.
  • Debts that have been settled – it can take time for credit reference agencies to update your details, so make sure they have done this before applying for credit.

Would an IVA affect my credit score?

An IVA will appear on your credit file for six years, which is the full repayment period plus a year after it has closed.

It’s also common for companies to register default notices on your credit report whilst you are in an IVA. This is because, although you are making payments into your arrangement and they are being paid, you personally have stopped making payments to the account.

Once you have completed the arrangement, we suggest that you contact the credit reference agencies with prove your IVA is now complete. This will allow them to update your report and mark the IVA as satisfied.

Would a Trust Deed affect my credit score?

The Trust Deed itself is not shown on your credit file. However, once payments are stopped, companies can register a Default Notice which will remain on your file for up to six years.

A Default Notice is a letter from a creditor advising that payments have been missed on the account. You can recognise this by the following statement: ‘served under section 87(1) consumer credit act 1974’.

This is normally put at the top of the letter and will give you 14 days to bring your account up to date or the default will register on your credit file.

If you’re struggling with debts or your credit score has been affected, contact us today. Our friendly experts are on hand to offer your quick and free advice to find the best solution for your situation.

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