It can be your golden ticket to good rates on credit cards, loans and mortgages – but can also cause you a financial headache. Blessing or block, why do we know so little about credit scores?
Often the first time we engage with our credit score is when we get rejected for a loan, credit card or mortgage, which can mean we’re always playing catch up.
But even when we start to get to know our score it can be bewildering to know what causes it to change.
The big three
There are three credit reference agencies in the UK: Experian, Equifax and Callcredit which gather data about us to pass onto lenders.
They all use a different scale and varying information to produce a score that we have little control over.
Experian uses a scale of 0-999, Equifax 0-700 and Callcredit 0-710. Lenders typically use one, two or all three to gather information about you to make a decision.
A low score can mean you don’t get access to finance or are given a worse deal at a sky-high rate. But it’s not just your finances that are impacted by your credit score.
In some cases landlords and employers use the magic number to make decisions about letting a property or offering you a job.
So for a number that has so much control over our lives, it’s worth finding out what it is and what it means.
All three credit reference agencies are pretty upfront about the data they hold on you and all will allow you to check your credit score for free.
Knowledge is power
But it’s rarely enough to just know your score. Understanding what’s pushing it up or down is vital in empowering you to do something to change it.
Most people know that registering on the electoral roll and having some form of credit can boost your score.
But what about the everyday spending and borrowing that credit reference agencies use to make up our financial profile? Are we doing unwitting damage to our scores by not knowing enough about the actions we’re being judged on?
The processes of building up these profiles are usually a closely-guarded secret, making it difficult to guess how certain actions make an impact.
How much do you know?
However, Experian has revealed some of the situations your credit score can be boosted or hit by how you manage your bills, credit card spending and more.
Take the quiz below to test your credit scoring awareness.
Credit scoring: how much do you really know?
Think you know everything there is to know about how credit scoring works? Test your knowledge with these five questions.
You have a credit card with a limit of £3,000. Each month you spend and pay back £2,800. What impact does this have on your credit score?
The limit on your credit card is £1,000 but you decide it’s best to reduce it to £250 to help you avoid splurging. What impact does this have on your credit score?
It’s time to renew your car insurance and you opt to pay monthly. What impact does this have on your credit score?
Shopping around has served you well and you’ve had your credit card for five happy years now. What impact does this long-term relationship have on your credit score?
Enough is enough. You’re going to bite the bullet and switch to a bank account with a decent fee-free overdraft. What impact does opening this new account have on your credit score?
Credit awareness is not your strong point
Your credit awareness is top notch