Your credit score is an important number in your life as it can affect many financial aspects of your life. The three-digit number is a representation of your credit history, based on an analysis of your credit file, that helps a lender determine your credit worthiness. When an individual applies for a loan, such as a mortgage or car loan, the provider will use a credit score to help them decide whether to lend the money, the amount to lend and the interest rate.
An individual’s credit score is calculated by credit reporting agencies who collect financial and personal information and document it on a credit report. The information is then used to calculate your credit score. Areas agencies assess are;
- Your personal details; age location, etc.
- Types of credit providers previously used; bank, utility company, etc.
- The amount of credit borrowed.
- The number of credit applications and enquiries made.
- Any unpaid or overdue loans or credit.
- Any debt agreements or personal insolvency agreements relating to bankruptcy.
A credit score is rated on a five-point scale with the position of your credit score on the scale helping lenders work out how risky it is for them to lend to you. The scale goes excellent, very good, good, average and below average.
To prevent a negative credit score, individuals should try to spread applications over a larger amount of time; lower credit card limits; ensure their credit card is paid in full each month; and pay their rent, utilities and other loans on time.