Your credit score, sometimes also referred to as your credit rating, goes hand in hand with your credit report.
When you apply to borrow from a broad range of lenders, they consequently scrutinse the combined information on your application and in your credit report.
This process includes not only banks and building societies for credit cards, loans, mortgages or overdrafts, but also sometimes mobile phone contracts and car insurance. This information equates to your credit score.
What your credit score facilitates your potential lenders with is insight in to your ability to pay them. Yet lenders do not simply use your credit score to determine a simple yes or no to your borrowing application.
It might also influence the quality of lending that they offer you, for example, the better your credit score is, the more favourable interest rates you might be offered and vice versa.
With regards to the scoring itself, the methodology does differ slightly from lender to lender and lenders do not publicly disclose their individual calculations. As a result of this, you might find your credit application rejected by one lender but accepted by another, although outright poor scores can often be uniformly off putting across a plethora of lenders.
What does your score mean?The ultimate acceptance or rejection of your credit application can also work in mysterious ways, as the theoretical ideal borrower can differ dramatically between lenders, as dictated by their own business objectives. It is a broadly acknowledged fact that lenders often penalise credit card applicants who have exemplary credit scores on paper.
Lenders might be targeting applicants whose credit scores give evidence of their abilities to make minimum monthly repayments rather than full monthly balance clearances, equating to the maximum amounts of interest they are likely to scoop per customer account.
Whatever their individual motivations, there is a very clear picture of what factors influence and, likewise, have no influence on your credit score.
What Information is Pieced Together to Make Up Your Credit Score?
The information you include on your credit application form gives a crucial insight in to your personal details that contributes to your overall credit score, including the size of your family, your home owner status, your postal code area, your reason for requesting credit and your salary or wage specifics.
You should be aware that your potential lenders cannot request to see your credit report without your agreement, although you may regularly and unwittingly grant it as part and parcel of the terms and conditions of your credit applications. There are several leading credit reference agencies used by lenders, who base your credit report on information regarding:-
Associate information includes details of multiple addresses you might have or previous addresses where you have lived and had credit in recent years. It provides the details, but not specific financial data, of other people with whom you are financially associated, for example, your joint credit card or mortgage holders, whose own financial statuses might affect your own financial stability.
Finally, details of other lenders to whom you have recently applied for credit are included, although not their decisions to lend to you or not.
Credit Account Details
All of your primary lenders share information about your bank accounts, credit and store cards, energy bills, loans, mortgages and mobile phone contracts. The information complied can include how much you owe, how much credit is available to you, defaulted payments and payment patterns relating to the amounts you tend to pay off. Different lenders share different levels of information.
They provide details about CCJs and IVAs, indicating potential severe financial issues.
This confirms the address at which you are registered to vote and also details about who else resides at your address.
Identity Fraud & Theft
Information is detailed if you have been convicted of identity fraud or theft or have been a victim of either.
What Information Has No Bearing on Your Credit Score?
Child Support Payments
Any payments you make towards your children via the Child Support Agency are not interrelated with your credit score.
Driving or Parking Offences
Your credit score remains unaffected by any motoring fines you might have incurred, as they are unrelated to your financial status even though they are issued by criminal courts.
Details of your family members who currently live with you or have lived with you in the past are not taken in to account when you apply for credit unless you have joint credit card or mortgage accounts with them, (as detailed above).
Defaulted payments and discharged bankruptcies are excluded from your credit report after a six year period. Thus, whilst they do affect your credit score before the end of the six year duration, they do not afterwards.
Your past medical history is irrelevant to your credit score.
As dictated by law, these include disability, colour, gender, race, religion and sexual orientation.
Rejected Credit Applications
Whilst lenders can see what other credit applications you have made, they cannot see whether your applications were accepted or rejected, (as detailed above). Whilst lenders can probably draw their own conclusions when they peruse the list of your current accounts, your declined applications do not weaken your credit score.
As any saving accounts you hold are unrelated to credit, they are not considered in terms of your credit score.
Are There Any Grey Areas Regarding Your Credit Score?
There is always room for grey areas when taking your credit history in to account, as financial matters are often simply not black and white in their very natures and accompanying complexities.
One particular area of potential anomaly is that of student loans. Pre 2009, your potential lenders were generally unaware of whether or not you were making repayments to the Student Loans Company unless your were issued with a CCJ for non payment. Otherwise, your student loan status had no bearing on your credit score.
However, from early 2009 onwards, the Student Loans Company started to share information about default payments with credit reference agencies. If you are repaying a student loan, this only applies to you if you were at University before 1998, before the newer loans system was implemented with repayments made through HMRC.