The importance of credit scoring to our lives has grown exponentially since the start of the credit crunch back in August 2007.
Banks use Credit Reference Agencies (CRAs) like Experian, who has been building a collection of unique consumer credit data since its inception in 1968, which is critical for the decision making processes of its credit granting customers.
The three main UK CRAs, Experian, TransUnion and Equifax have all developed unique ways of scoring our financial and personal data, and because each company’s dataset varies many banks use reports from all three.
When am I credit scored?
Why do people strive for a good, or excellent score when thinking of making a credit application? The simple truth is, if you have a poor credit score the computer will say, no! In other words, your application will be rejected. But also, if you fall into the higher score categories, you’ll have the opportunities with the best lenders, at the best rate and the best terms.
Mortgages: as likely the single largest loan you will have in your life, an individual’s credit file score, has for many years affected whether or not you will be granted a mortgage. If you’re planning to apply for a mortgage or remortgage, it’s worth starting to look, plan and manage your money and credit anything between 3-12-months before you make an application – it’s purely dependent on where your score is on day one.
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Credit cards: your credit file gives lenders the score to allow them to accept your credit card application, but it’s also whether you’ll be given promotional rates and the APR you’ll be charged on any revolving credit.
Loans: your credit score matters both for acceptance, but also the lenders you can approach, the rate you’ll pay and the terms.
Car and home insurance: if you opt to spread the cost of the policy, then your insurer or a third-party premium finance company is loaning you the money to pay upfront. Paying monthly will likely mean a credit search is carried out to see if you are eligible for this line of credit, and you’ll also be charged annual interest.
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Utility bills: big electricity and gas companies may run checks on you. Sharing data is now spreading to utility companies. The most important thing to do is pay your bills on time, or it could harm your chances of applying for other credit.
Mobile phones: you’re credit-scored for a phone contract too, mainly because the company is spreading the cost of the handset over the contract period, so it’s effectively a loan. Look for companies offering no interest or an extra cost for the handset over a 2-3-year contract term.
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