Credit Scoring

How does Credit Scoring Work?

Credit scoring can be a bit confusing and it can be a good idea to have a good understanding of how it works so that you can use the knowledge to your advantage.

What is a Credit Score?

Your credit score is something which a person will calculate to see whether they feel that you are trustworthy with regards to finance. That person, whether a lender, landlord or whatever, will have a way of assessing you using your credit record. Your credit record lists all sorts of information such as what loans you have, what regular payments you make (such as utility bills), whether you have missed any payments and had an CCJ’s. The person will use that information to decide whether they are happy to lend you money, take you on as a tenant etc.

How is it Calculated?

Each person will have their own way of deciding whether they feel that a person can be trusted or not and will take different things into consideration. It is thought that having evidence you can make regular payments and perhaps repaying a loan in full in the past can help you but missed repayments work against you. Although there are some theories that some lenders like it if you miss one payment or so because if you do that when you have borrowed from them you will have to pay extra charges which they will benefit from. It can be hard to know quite what to do at times, but it is probably best to keep your finances in order if you can do so that you feel better with your situation and you are financially better off as well. It is a risk to leave things unpaid just in case lenders like it as it is probable that most will not. Some places will not actually work out a score, but they will just look for certain things. If they see you have been turned down for a loan application, that may just be enough to put them off. If you have had lots of recent loans, that could also put off potential lenders because it will look like you have been desperate for money and not managing your finances that well.

How Can I Check it?

There are several different places that you can go to check your own credit record – Equifax, Experian and TransUnion. It is a good idea to do this because it means that you will be able to make sure that all of the information is correct. You will also be able to examine what is on there and have a think about whether you need to try to improve anything. You can check your credit record for free and there will be no trace on it to show that you have checked it so it will not impact what others looking see or think of you as a result. Consider what potential lenders might be looking for an that should help you to identify areas that you might be able to improve. It can be a bit of a guessing game, but a good rule of thumb is to make sure that there is evidence that you are making regular payments.

So, credit scoring can be a bit of mystery. However, if there is a particular reason that you are concerned about it, perhaps because you are looking to rent a home or borrow money then to the company concerned and ask what they look out for. Then you will be able to do what you can to make the best impression with your credit score.

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