An Introduction to Credit Scores
Hello! In this post, we are going to begin our discussion on credit scores - boring I know, but useful to be informed on. This will be the first of 4 posts going into depth about credit scores, what they are, how they are used, and how to improve your own. This first post will be a general overview of credit scores, who checks them and why.
No matter who you are, how old you are, or what you do - I can say with certainty that credit score will come up at some point in your life - whether you are buying a house or even just taking out a phone contract. Some of you might have absolutely no idea what I am talking about, and some of you may have a good understanding of what credit is but are just looking to improve upon your knowledge.
So what exactly is a credit score? The most direct answer to this is that it is a number generated by Credit Reference Agencies (who we shall be referring to as CRA's from now on, out of laziness), which determines the level of risk you are to lenders if they were to lend to you; your score will influence whether or not you qualify for credit, the limit you will be given and the interest rate you will receive. This means that those with a higher credit score will be seen as lower risk and are more likely to receive credit.
Your credit score usually comes with your credit report - which is essentially just background as to why you have that score. It holds your past financial details such as credit cards and payment habits, which all stay on your credit report for around 6 years (unless ordered otherwise by the court).
Your credit report can see the following:
You might be wondering when exactly your credit score is likely to be checked, well your credit score will probably be checked every time there is some sort of payment plan associated with your purchase - such as a direct debit. Some examples of when you will be credit checked are with mortgages, credit cards, loans, overdrafts, technological contracts (phone or otherwise) and utility contracts; your landlord can even have a soft credit check done on you in the event that you would like to start renting from them.
You will be credit checked to ensure that you are reliable with payments and do not have a history of trying to skip out on payments. Try not to take it too hard if you are denied credit, as you can also get a poor score for having little to no credit history - which is why building your score is so important. If you would like to learn how to do this, check back to see our post on what impacts your credit score and how to build it.
I think that we have pretty thoroughly covered a very basic overview of credit scores, check back next week to learn more about Credit Reference Agencies, how they calculate their scores and how they compare to each other.
Have a great weekend!
All the best,