If, in the future, you're considering a major purchase, such as buying a property, it’s important to ensure that you have all the necessary information you need to start this process. A good estate agent will guide you throughout your entire property journey, and help you be prepared. We’ll help you get to grips with a vital component of this journey – your credit score.
What is a credit score?
Your credit score is usually a 3-digit rating found on your credit report. It helps banks and moneylenders determine your financial position and gives them an idea of how well you manage your money. Your score reflects how likely it is that you’ll repay any loans, and it can determine the amount of credit you’re offered.
What is your credit score based on?
A credit score is based on various factors and information collected by the credit reference agency. Credit reference agencies collect information from public records, e.g. the electoral register and court records, and from lenders and service providers.
In general, it is based on your track-record of any credit repayments, for example from your credit card or phone contract. In other words, it’s mostly based on how well you repay what you borrow.
How is your credit score calculated?
As mentioned above, your credit score determines how reliable you are when borrowing and repaying loans. Different lenders use different credit reference agencies to complete your credit check. Each of these agencies, Experian, Equifax and TransUnion has their own scoring system, ranging from very poor (000) to excellent (999 or 1000).
To give you an idea of what a credit score scale may look like, here’s an example of how Experian provides its credit scores: 999-961 is rated as excellent, 960-881 as very good, 880-721 as good, 720-561 as poor and 560-0 as very poor*.
What is a good credit score?
As a general rule of thumb, the higher the score, the higher your chance of being accepted for a loan. The scale tends to range from very poor to excellent. There is, however, no specific number that will guarantee you’ll be accepted for a loan, as every lender may have varying criteria that could work in your favour or not.
What’s the difference between a soft credit check and a hard credit check?
You may be curious to know whether you have a good credit score. You can check this by doing a soft and hard credit check. So, what’s the difference between the two?
A soft credit check helps you gain a better understanding of what your credit score could be so that you can easily compare different products. A company might also perform a soft credit check to confirm your identity. In some cases, you might choose to perform a soft credit check when you’re thinking about applying for a loan or are simply curious to understand where you stand. Most importantly, a soft credit review won’t affect your credit score, as they aren’t recorded on your credit report.
A hard credit check is done when you submit a credit application. The lender you’re applying to will then request your permission to complete a full credit check. A hard credit check is recorded on your credit report and can affect your credit score. Having multiple hard checks over a short period of time can reduce your chances of having a loan application approved.
Tips to help build a good credit score
After gaining a greater understanding of what a credit score is, here are some tips on how you can build a good credit score:
- Pay your bills on time
- Avoid exceeding your credit limit on your credit cards and avoid going into overdrafts
- Register to vote
- Note that doing a ‘hard’ credit check may affect your credit score
By no means a complete list, but the above will give you an idea of how you can build a positive credit history. Then, when the time comes, and you’re ready to apply for a loan to buy a property, you’ll be ready to start your property journey.
