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What is a credit score and why do I need it?

Cameron | Greater London| 06/09/2017 | 0

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Cameron's question in full

What is a credit score and why do I need it?

Holly Mackay's Response

A credit score is a magic number that is used by lenders to assess how reliable you are as a borrower. This number is SUPPOSED to indicate your likelihood of paying back debt on time, which lenders obviously want you to do (otherwise they don’t get back the money they lent you or they have a right hassle trying to get it back.)

It works on the basis (rightly or wrongly) that what has happened in your past is likely to happen in the future – so if you have shown a proven track record of responsible borrowing, lenders will feel you’re a safe pair of hands and are more likely to approve you for credit.

The higher your credit score, the more likely you are to get approved – whether that’s a mortgage, a credit card or a personal loan. Moreover, you’re also likely to get favourable terms for that credit as you’ll have a greater choice of products (which often means lower interest rates on your repayments, making the whole deal far cheaper in the long-term.) The lower the number, the more borrowers will think twice about accepting you for credit.

Unfortunately, it can be damaging to make 'hard' applications for credit only to get rejected. These rejections show up on your credit file and make it even harder to get approved. It’s vital, therefore, that you persuade lenders to do a ‘’soft’’ credit search on your behalf wherever possible as the results will not be passed onto other lenders when they search you.

Each lender will put together its own credit score for you behind closed doors. Each lender will score you differently based broadly on three criteria; past dealings with you (if any), application information AND your credit file. This might all seem very secretive and furtive, but the good news is that you CAN see your credit file by registering with a credit reference service like Experian, Equifax and Noddle.

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Our Expert

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Holly Mackay

Founder and MD of Boring Money, Holly Mackay has been working in the investments space since 1998. She read Modern Languages at Oxford, with a special focus on Mediaeval French which was deeply interesting and arguably utterly useless.

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