Credit Score looks at your current and past financial history, plus other personal details, and using mathematics, analyses what type of 'risk' you are.
By 'risk' I mean whether it is likely you'll pay back the money borrowed; whether you can really afford the repayments etc.
Factors that can affect your score include:
* Late or missed payments in the past
* County Court Judgements and arrears
* How much you currently owe - even if all your payments are up to date
* You not being on the electoral roll
* Applying for lots of new credit accounts - this is viewed that you are someone likely to or are getting into financial trouble
* The length of your credit history
* Financial associations - other people listed on your credit file that have bad debts can affect your credit rating
Why Your Score Matters?
Your Credit Scores matters because it is probably the most influential factor used by Credit Providers in deciding whether they will give you a loan/mortgage/other credit.
However, it is the lender who makes the final decision and they may well take in to account reasons for past credit problems. Apart from checking out your financial history, they will also need to look at your occupation; whether you have any equity in your mortgage, your income and savings etc and also your marital status and dependants.
The lower your credit score, the less chance you have of getting credit as a low credit score equals there being a high risk of you not paying your debt back on time.
It also shows whether you are on the electoral roll (which, if you are not, can affect your chances of getting credit as your home address is not 'proved') and any financial associations. A financial association is someone who you have been financially associated with now or in the past. It could be an ex-partner, your mum or dad or even a person who lived at your address before you did and has not been removed from your file.
If the person or people named as a financial association are not associated to you - ie. you have no joint financial obligations and the person is not living with you - then you can request that the credit reference agency have the details removed.
Keeping them on your file - particularly if they have experienced financial difficulty in the past - can have an adverse affect on you getting any credit.
When looking at approving a loan, Credit Providers will also look to see how much you are paying out on other existing debts - if you have lots, they may well turn you down for a loan even if your credit rating isn't that low. This is as they may feel that you would be financially overstretched with a further debt to service.
Your credit record - which is held by all the major credit referencing agencies such as Experian and Equifax and Call Credit plc. When you apply for a loan, the Credit Provider will carry out a credit search - and will give you a credit score based on the information within your file.
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