What is a Credit Score and Why Does it Matter?

What is the Problem?

This one comes from David in Newmarket, and his question is: “What is a credit score?”

A credit score is a third party assessment of your ability to handle liability (li-ability), and is usually required, and obtained, to help staff members assess applications for things like loans, credit cards, mortgages, mobile phone contracts and store finance.

The Outline Solution

The following broad elements of your "profile" are usually taken into account:

• Stability of Home Address
• Stability of Employment
• Ability to Pay
• Previous Payment Demonstration
• Social/Economic Demographic

Ratings for each element are then added together to produce a total or "score" - hence the phrase: "credit score".

Elements of your personal profile are "weighted" to either improve or worsten your total "score". Who you've applied-to affects which elements are weighted and how they are weighted.

Many companies take into consideration their past experiences when weighting specific profile characteristics. For example, a company may have experienced less hassle collecting payments from homeowners, hence homeowners may score higher than private tenants.

Possible Arguments Against You

• Different institutions may score/rate you differently: they will weight different elements of your profile, and the weighting generally depends on the type of "customer" they wish to do business with.
  
  
• Companies are not obliged to use credit reference agencies, but a lot of them do, usually because they can access a large and varied quantity of information about "you".
  
  
• Credit Reference Agencies publish the information supplied to them by subscribing companies. It is possible for errors and misinformation to adversely and or wrongly affect the 'score' they attach to you.

The Almost Legal Info

You can obtain a Statutory Credit Report from any of the major Credit Reference Agencies by sending them a cheque for £2.00.

In truth, a score is not ‘your’ score; it is their assessment (scoring) of you!

Helpful Paragraphs:

Think about the language they use. When you "score" something - you "cut it" or "mark it".

Perhaps that is why people say "I have a black mark against my name/address".

The main Credit Reference Agencies are

• Experian (‘Credit Expert’)
• Equifax

Need More Help?

Ultimately, it starts with you. If you want to improve your credit score in the eyes of the main reference agencies; you’ll be interested to learn that we’re putting together a MasterClass which will not only help you understand how the scoring system works, but also, show you how to positively affect the score recorded against your name.

If that's something which would interest you, email us at [email protected]

We'll make sure we reserve you a space at the MasterClass.