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“Credit score” is a phrase you might occasionally think about. Maybe worry about. But do you understand it?

I wasn’t really bothered about my credit score until a decade or so ago when I had to apply for a mortgage. Only then did I realise just how important it can be.

Fortunately, it was all ok and I got my mortgage. In the years since I’ve kept track – and that’s something you should do to even if you’re not going to buy a house.

Here’s my Be Clever Basics guide, and three easy ways you can check your score for free.

You can also listen to an episode of my Cash Chats podcast on the topic.

What is a credit score?

A credit score or rating is a number that gives you an idea of your financial health, and how likely it is you’ll be lent money. This score based on your credit report.

Why is a credit score important?

Well the score is actually only important to you. But what it indicates is vital when you try to borrow money. That’s because a credit report is one of the leading factors that influence lenders when they’re deciding whether to offer you a product or money, and how much you should have. 

So a low score will indicate a bad credit report, which could mean you get rejected or get offered less money than you need.

Of course, that’s not the only place lenders get their data. You’ll have put information on the application form and if you’re an existing customer they might have their own file on you.

Plus, a recent investigation by Money Saving Expert found that lenders are using Open Banking data too.

Still, it’s really important that you keep an eye on your score, and boost it as much as you can.

Who decides your credit score?

You actually have three scores, calculated by three different companies – Experian, Equifax and TransUnion.

They all hold slightly different data on you in their credit reports, and then work your score out slightly differently. They even have completely different scales. So you can’t really compare one with another.

What’s a good credit score?

Each company you apply to will have different acceptance criteria and use a different credit agency.

This makes it difficult to know if your rating is good enough. But each credit agency will have its own guide to let you know roughly where you stand.

When do lenders search your credit report?

Your report isn’t just searched when you apply for “serious” financial products like mortgages, loans and credit cards. Everyday consumer contracts are subject to searches too. 

That’s because you’re essentially asking for credit when you open a new bank account, get a contract mobile phone and switch your utilities.

Even paying your home or car insurance by Direct Debit requires a credit check (it’s usually cheaper to pay these in a lump sum if you can).

Any application for one of these will be subject to something called a “hard” check. This will then appear on your report for other lenders to see, whether you’re successful or not. They’ll stay there for 12 months.

However, if your report is looked at by comparison sites or to assess eligibility, this is actually a “soft” check, and though you can see it on your file, lenders can’t.

This distinction can be really important, especially to reduce the chances you’ll get rejected for a new credit card.

it’s worth noting that when you apply for credit, you don’t know which of the three credit reference companies will be used.

What negatively affects your credit rating?

Any application can actually have a negative impact, even if you’re accepted. So it makes sense to not make too many at the same time – especially if you’re going to be asking for something big like a mortgage.

The other main factors to hit your rating include:

  • Any time you are late paying a bill or credit card
  • Any county court judgements, bankruptcies and the like in your name, they’ll also be accounted for
  • Incorrect information such as different or old addresses and phone numbers on your accounts
  • Being financially linked to someone with a poor report, such as a partner or flatmate.

You also need some kind of history with credit to have a useful report. So if you’ve never had a credit card or had a utility bill in your name, it’s worth trying to build some credit. This especially affects young people.

Can switching bank affect my score?

I’m a big fan of taking advantage of the offers available with current accounts. However, each time you open a new account it’ll be shown as a credit application on your file. So too many of those can have an impact.

But it’s all about the wider context of other hard searches made around the same time. It shouldn’t affect applications for things like energy bills and mobile phones, but it might for mortgages. So space the switches out if you’re likely to also go for something else soon.

It’s also worth considering if switching away means you’re terminating a long-term relationship on your score. Most people have been with the same bank for a long time, which gives you some positive credit history. Again, this is probably most relevant if you’re applying for something big.

How can you improve your credit rating?

Well, paying your bills and cards on time is really important. Setting up Direct Debits can help you avoid forgetting.

Being registered to vote is an essential way to prove who you are and where you live.

It’s also good to show consistency and stability. So that means having the same address and contact details on all your bills and banks.

The amount you have on credit cards is interesting too. Credit utilisation is how much of your credit limit you actually use, and Experian recommends keeping it to around 25%. So if you can borrow £2,000, try not to spend more than £500.

If you pay your rent on time every month you can use a service like Credit Ladder to get those payments added to both your Experian and Equifax files.

There are also some credit cards specifically to help people with bad ratings. You spend on them and as long as you can completely clear the balance each month they show you are able to repay credit.

Free ways to check your three credit reports

You don’t have to sign up to a credit agency’s own subscription service to access this information. You can get your score for free from the credit agencies, and you can also request a Statutory Credit Report to view online.

However, there are also ways to get both online as well as additional services, such card and loan eligibility and tracking.

These services will all also email you monthly or when things change. It’s worth clicking through to check when you receive them. This can be an early warning sign of any fraud or applications not in your name.

If you ignore these (it’s easy to do when your inbox is full) at least check then before any you make any applications.

Check your Experian credit report for free

Money Saving Expert has its Credit Club. Here you get full access to your Experian files, as well as some added extras such as eligibility for credit cards and loans.

Check your Equifax report for free

ClearScore is a free way to monitor your Equifax score for life. It’s simple to find your way around it and it explains what you’re seeing. Just ignore the products they try to sell you!

Check your TransUnion report for free

You can do this for free via the Credit Karma website. It’s the most basic of the credit agency sites but gives you all the information you need all year round.

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