What is a Credit Score?

Your credit history is the complete record of your borrowing and repayments. It includes information about credit cards, utility bills, and even your mortgage.

Any time you apply for a financial product or service, your prospective lender will check your credit history with at least one of three major credit bureaus – Equifax, Experian or CallCredit. These companies build up a picture of your credit worthiness by analysing bills you have paid, loans you take out and credit card you use.

That history is used to give you a personal credit score, which lenders will be able to see when deciding on your applications for new products.

Your credit score is an important measure when creditors decide whether to lend you money, let you open an account or take out a credit card. When a lender looks at your credit score they are looking to see how reliable you are when it comes to paying your bills and repaying debt. This information helps all lenders decide whether or not to take you on as a customer.

The more financial information that credit bureaus collect, the more robust and reliable your credit score. Bureaus are sent information on how much you borrow, whether you pay bills on time, and what percentage of outstanding debt you repay. Each of these pieces of information contributes to an overall credit score.

Although most information stays on your credit report for a long time, there are still a number of ways to improve your score.

• The easiest way to build a good credit record is to stay on top of your finances and make repayments on time. Missed repayments are a surefire way to damage your credit score, so set up direct debits or reminders on your mobile to make sure you don’t miss them.

• It’s a good idea to check your credit reports with one or all of the three credit bureaus in the UK – Equifax, Call Credit, and Experian.

• If you’ve moved home recently or just relocated to the UK from another country it’s a good idea to make sure your information is up to date and there are no errors on your file.

• You should also ensure you are registered to vote and are listed on the electoral role. This is often overlooked but is vital to your credit score.

• If you’re not eligible to vote but would like to apply for credit in the UK it might be worth sending proof of residency documents to the bureaus.

Your credit score can go up or down for many different reasons, not all of which are immediately obvious. Failure to make a monthly payment could not only result in being charged penalty fees but may also have a negative impact on your credit score.

However, the more ‘good’ activities are recorded in your credit report, the less impact poor credit performance in the past will have. That’s why it’s important to make sure you pick the right card to suit your own personal spending habits.

For example, a charge card that requires you to pay the balance in full every month can be a good way of bolstering your credit score, as long as you stay on top of repayments.