what the heck is

What the heck is… my credit score?

By Oliver Smith 16 March 2017
Summary

Explaining the buzzwords of the moment: what is my credit score and why should I care?

Our weekly series What The Heck Is… exists to shed light on the strange unexplained acronyms and unfamiliar buzzwords that creep into our everyday lives.

From remittances to helicopter money, we’re on a mission to explain the difficult to explain.

Now, in honour of Future Finance month, we’re exploring the financial phrases that might baffle your brain… like credit scores.

What the heck is your credit score?

You’ve heard or read of ‘credit scores’, but probably never really understood what these secretive scores are or what they mean.

Essentially your credit score is a number that represents how likely you are to repay on a loan.

It’s a number created by companies (three in the UK) who calculate your credit score based on thousands of factors, including every loan you’ve ever taken out, every utility bill you’ve ever paid and even the number of times you’ve dipped into your overdraft.

If you’ve ever done anything, credit-wise, that they deem as ‘risky’ your credit score takes a hit.

Why should I care about my credit score?

Now upon discovering their credit score (more on that in a minute) many people panic.

What if my score isn’t very high? This is a disaster!

The reality is that if you’re looking to borrow money from a bank, someone with a better credit score will be given access to better deals.

Whether that’s longer discounted periods on mortgages, lower interest rates on a loan or more flexible terms around the money they’re looking to borrow.

Basically the banks will trust you more and be more willing to offer you a better deal, because you’re seen as lower risk.

If you’re not looking to borrow any money then your credit score is… pretty worthless.

How do I find out my credit score?

For years your credit score was a closely guarded secret.

Credit scoring agencies – in the UK these are Equifax, Experian and Callcredit – didn’t want to give out your score as they saw it as the valuable product that they sold to banks.

But in the last few years these agencies have realised that people actually want to know their own scores, and could be upsold credit cards in the process, so today it’s free and pretty easy to check your scores from the three agencies – each agency will hold their own ‘score’ for you, and these can be vastly different.

Experian

Experian is the UK’s most popular credit agency, used by the most banks and credit card companies. You can check your Experian score for free once a month just by signing up via their website.

Equifax

Clearscore is the official partner of Equifax, offering you a free monthly check of your Equifax credit score in return for a barrage of adverts on their website for car insurance and credit cards that you qualify for.

Callcredit

Ditto Noddle is Callcredit’s partner, Callcredit being the UK’s smallest credit scoring agency, again which lets you check your score for free for life.

How do I improve my credit score?

This is where things get tricky, as well as repaying all your loans and bills on time, there are a number a tips and tricks in boosting your credit score – whether you’re planning on applying for a mortgage or loan.

We’re not personal finance experts, so I’ll point you to this excellent guide from Martin Lewis and the bods over at Money Saving Expert if you want to dig into the dark arts of boosting your credit score.

The bottom line is that as long as you’re being financially responsible chances are your credit score will be improving all the time, so that the day you need it, it’s there for you.

Our weekly series What The Heck Is… exists to shed light on the strange unexplained acronyms and unfamiliar buzzwords that creep into our everyday lives.