What is a credit score? Understanding your credit history

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Talk about what is a credit score can be confusing, intimidating and more than a little bit baffling. Plus, there are always myths and rumours about what can affect your credit score and some mixed advice about how to improve your score.

That’s why we’ve put together this quick guide that explains what is a credit score, how lenders use it, how to find out your credit score and how to improve it. We’ll also be dispelling a few myths about credit scores that seem to hang around so that you’re fully informed and able to take positive steps towards finding out and – if necessary – repairing your credit score.

What is a credit score?

In simple terms, it’s a method that lenders use to determine the likelihood that you’ll be able to make the repayment terms of any amount you borrow, whether you’re taking out a loan, mortgage or credit card.

They consider a range of information – from whether you’re registered on the electoral roll to your repayment history – to give you a score that determines how likely you are to repay the amount you borrow.

A good credit score simple means that you’re perceived as less of a risk to lenders. As a result, you’re more likely to be able to borrow larger amounts at better rates.

What is a credit report?

A credit report is slightly different to what is a credit score. Your report contains information about your personal credit history from the last 6 years. It contains information on everything from credit cards and overdrafts to phone contracts and utility bills.

If you’ve ever missed payments or had a CCJ, these will appear on your credit report too.

If you are over 18 and have taken out credit or paid bills, a credit reference agency probably holds a credit report on you.

These reports are used to form the basis of your credit score – but must always be used with your permission.

Things that affect your credit score

Because you have lots of credit scores (not every lender uses the same scoring system), it’s impossible to tell you everything that lenders take into account. However, there are a few things that are almost universal in credit score considerations:

Payment history – your repayment history has an impact on your credit score, so it’s important to make sure that you pay on time and don’t miss a payment. If you have a history of missed payments, it’s a good idea to start monthly repayments of some kind or other to show that you’re no longer a credit risk.

Amounts owed – credit agencies look into the amount that you already owe to other lenders in the form of mortgages, credit cards, overdrafts, loans and other borrowing methods. The credit agencies like to see that you have a mix of account types and that you’ve made timely repayments on them each month. But owing too much could negatively influence your score, especially if your debt-to-income ratio is high.

Whether you’re registered on the electoral roll – credit agencies use this as a way of seeing if you live where you say you do and to prevent identity theft.

Length of credit history –if you’ve been borrowing for a long time, and haven’t missed any payments (or have only missed a few), this can work in your favour.

New credit accounts or applications – as a rule, those people opening lots of new credit accounts (or trying) are experiencing cash flow problems, anticipating them or planning on taking lots of new debt, making them a risk to lenders.

I know what is a credit score. How can I improve my score?

If you’ve got a low credit score, don’t panic. There are plenty of things you can do to get your score back on track quickly.

Firstly, make sure that all of the quick, easy fix details are correct. Make sure you’re registered on the electoral roll and that any unused accounts with credit on them are closed.

Next come the slightly trickier steps. Make sure that you keep up with repayments and pay on time, every time. If you find it hard to keep track of payments, make note of them on your calendar and make sure that there’s enough money in the account to pay them.

Finally, keep up to date with your credit score and monitor any changes. Noddle is a free and easy to use online tool that helps you track your credit score and gives you tips on how to improve it.

Can I still get a loan with a poor credit score?

If you have a poor credit score, it can often feel difficult to get a loan. However, if you borrow money from a lender and make regular repayments, you can slowly rebuild your credit score and improve your chances of being approved to borrow more money at better rates in the future.

That’s why Bamboo have designed a variety of loan options for people with poor or no repayment history.

Over time, a bad credit loan or guarantor loan could actually improve your credit score because, while you’re making your regular monthly payments, this shows you’re a lower credit risk.

Plus, with a loan from Bamboo, you’ll know exactly how much your monthly payments are so you can plan ahead and be sure you’ll meet them. Representative 49.7% APR. A guarantee may be required.

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