Your credit score is determined by your credit history, and so it is important to know what your credit score is to know how easily you will be able to access credit.
To be accepted for credit you will be required to have a good credit score, otherwise you could be rejected completely, or be offered the credit at a very high interest rate which can make it unaffordable to pay back.
It is therefore important to know your credit score before you require credit for borrowing purposes, so you can improve your rate if need be before you come to the point when you need to borrow.
How is Credit History Assessed?
Never Borrowed Money: If you have never had a credit card, or borrowed money from a bank or loan provider, your credit score will not be very good. This is because as far as the lenders are concerned you are a blank canvass – they do not know if you are good or bad at repaying your debts. If you do not have a regular income you may find it hard to be accepted for credit as a lender will typically want to see you have a means to pay back your balance.
Credit History: Lenders will look at your past borrowing habits when assessing your credit history to formulate a credit score. If you have borrowed money in the past and have missed repayments, or have only ever repaid the minimum each month your score will not be rated well.
How a Credit Score is Formulated: Your credit score will be different at each lender you apply to for credit as they will all have different criteria against which they judge how risky a customer is to lend to.
- Personal Information: The application form will give the company you are applying for credit your name and address and the reason why you require the credit. They will assess your life circumstances, such as people or children who are dependent on you and how you are able to cope with this financially. They will also compare this to your salary and your ability to repay the credit.
- Past Debt: If you have been made bankrupt they will discover this through court records, these will also have information on any debt problems you have experienced.
- Fraud: If you have committed fraud, or have had your personal identity stolen from you in the past then this will also be held on your file.
- Past Payments and Transactions: The companies from which you have received a service from and have been required to pay a bill will keep on record how well you kept up with these repayments. This could be your utility provider, another bank account and overdraft, store cards, mortgages, or mobile phone bills.
- Improve Credit Score: To improve your credit score many people who have never borrowed money take out credit cards to prove they can successfully repay money. If you do this, to save money, when you get your bill at the end of the month, pay the balance off in full and as quickly as possible.