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Understanding your Credit Score

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One of the main things that being in debt will affect is your credit score. You can find out your current credit score for free online in just a few clicks, as well as your entire credit history, in many cases.

Our guide will explain just how your credit score works, what affects it and just how it impacts on your everyday finances.

What is a credit score?

Also known as your credit rating, a credit score is a record made up of entries by third parties that shows credit companies how good you are at paying back money that you’ve borrowed. Usually, your credit score will be a three-digit number.

Your credit record includes:

  • How much debt you are in
  • Details of any debts that are unpaid
  • Details of any defaults
  • The amount of credit you have available

What impacts my credit score?

Your credit score reflects all the times you’ve borrowed money in the past and how well you’ve paid it back. It can also be affected by other factors, like how long you’ve been on the electoral roll at your current address, and how long you’ve held your bank accounts.

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 have a negative effect on your credit rating.

Other factors 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 cards
  • Having no credit history, for example if you’ve just moved to the UK or have just moved out of your parents’ home
  • Regularly running credit checks or applying for credit

What doesn’t affect my credit score?

There are some factors that won’t have an impact on your credit score, for instance:

  • Student loan debt (unless you’ve defaulted)
  • Rent arrears (unless you’ve been 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 – EquifaxExperian and Call Credit – all of which offer some form of free credit score check. Usually, free credit reports are only free for a limited amount of time. There are also several websites where you can check your score for free, however these may not always be as accurate.

It’s good to monitor your credit score from time to time, but it’s important to remember to cancel your subscription so you don’t spend unnecessarily.

What should I look for on my credit report?

It’s important that you check in with your credit 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 that 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’ve updated your file with any cleared debts before applying for more 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 while you’re in an IVA. This will be because although you are making payments into your arrangement, you personally have stopped making payments to this account.

Once you have completed the arrangement, we suggest that you contact the credit reference agencies with proof 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?

A trust deed will not show on your credit file. However, once your payments have stopped, companies can register a default notice, which will remain on your credit 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’ll be able to recognise this if you see the following statement on your letter: ‘Served under Section 87(1) of the Consumer Credit Act 1974’.

This is normally placed 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 by your finances, contact us today. Our friendly team of debt experts can offer free advice to help you find the best solution for your debt situation.