Your credit score is a big deal. It influences everything from securing the keys to your dream home, to getting the best rates on car finance.
When you understand your score, it puts you firmly behind the wheel, helping you snag the best rates and deals.
Ready to become a credit score guru? Read on to discover what a credit score is, how it works, and why it matters.
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Think of your credit score as a financial fingerprint. It’s a three-digit number that sums up how responsible you are to lenders and how well you handle the money you borrow.
In the UK your score is calculated by three primary credit reference agencies - Equifax, TransUnion, and Experian.
Each agency has its own unique way of crunching the numbers, so your score may vary slightly from one to the other.
Having a high credit score can open up doors to a broader range of finance options.
It could make approvals for car loans and mortgages more likely, plus it might grant you access to better interest rates and terms.
In a nutshell with a better credit score, borrowing becomes cheaper and more accessible.
On the flip side, a lower score can be a bit of a speed bump. It can leave you with fewer borrowing options and higher interest rates.
But here’s the good news: credit scores aren’t set in stone. They are dynamic and change based on how you handle your finances.
We’ll touch upon how you can improve your credit score a little later, but for now let’s help you understand how they work.
Credit scores may sound complicated, but they’re easier to understand than you might think.
It all boils down to your financial track record. That is, every loan, credit card bill, and even those utility payments you pay each month.
Credit reference agencies gather this data to calculate your score.
So, let's break down exactly what goes into this all-important number.
Variety is the spice of life, and it’s true for credit scores too.
Having a mix of account types, like mortgages, credit cards, bank accounts, and car loans, shows lenders you’re a pro at managing different financial commitments
Maxing out credit cards or carrying big debts? These can be red flags for lenders.
Staying well under limits, paying off your account balances in full each month and managing debts wisely keeps your score healthier.
Think the electoral roll is just about voting? Think again.
When you’re on the register it reassures lenders you are who you say you are, which can help to improve your score.
Things like IVAs, CCJs, or bankruptcy are an anchor on your credit score. They impact your score for up to six years, making borrowing tougher.
The longer you’ve had credit, the better. Lenders like to see a long history of credit management as it shows exactly how well you manage your finances.
How well you manage your accounts makes a huge difference to how likely you are to be accepted for finance.
Missed or late payments and going over your limit will put a real dent in your score. It also makes lenders think twice about approving your application.
If you’re wondering what a good score is, we’re here to help explain what ‘good’ looks like for each credit agency. Each credit agency has its own formula for calculating credit scores. So, what counts as a 'good' score can differ from one agency to another.
Let's peek under the bonnet at what a good credit score currently looks like with each of the big three agencies:
If your score doesn’t fit into these categories don’t worry, there's always a chance to turn things around!
Just like credit reference agencies, lenders also have different ways of adding up your score.
Here’s some of the key factors they’ll look at to crunch those all-important numbers:
Lenders will review your personal and employment details to get a clear picture of your financial identity.
Can you comfortably pay a new loan and still have enough disposable income to comfortably cover your other financial commitments each month? An affordability check helps lenders ensure you're not biting off more than you can chew.
Like a financial diary, your account history reveals to lenders how well you have managed previous debts. It includes the good, the bad, and everything in between.
Your payment history is one of the biggest factors that influences your score. Late payments can be an indication of financial management issues which could be a risk for lenders.
Lenders like to see how well you manage various accounts and repayments – from credit cards to loans.
Having a varied credit portfolio shows you can easily manage your finances.
If you want to boost your credit score and cruise smoothly towards car finance deals, there’s a few different routes you can take.
It's like prepping your car for a long road trip – a bit of effort now means a smoother ride later.
Here's some practical things you can do to ensure your credit score is in a better shape:
The number one rule to follow to improve your score is you need to make sure you don't miss payment deadlines.
Paying your bills on time shows you can handle your finances, reassuring lenders you’ve got this.
High levels of debt can really weigh your score down.
Lighten the load by lowering your debt and accelerating your credit score.
Being on the electoral roll is a simple yet vital step to improving your score. It validates your identity and adds credibility to your financial profile.
Older credit accounts show you’ve been responsible for credit for a while.
It’s like having a well-maintained vintage car – it shows care and responsibility.
Remember, it can take time to improve your credit score. However, taking the necessary steps now will pay off when it comes to applying for car finance.
At Carmoola, we look beyond the numbers, but your credit score still influences how much we can lend and the APR we can offer.
Following the tips above to boost your score can help you secure an affordable loan to get behind the wheel of your dream car.