November 04,2020

Credit Score - What is it and What is Yours?


Your credit score is important for you to know because It may impact on some lenders’ decision on whether or not to extend credit to you. Salad Money doesn’t use your credit score at all, but checking your own credit score could help you understand how the traditional financial world sees you as a borrower. By learning your credit score, you also avoid the element of surprise by checking your chances of approval before you even apply for any credit elsewhere.

You can go online to find out your credit score or request a written copy. There are various different websites that will help you do this and each have their own benefits: for example, if you were to use Experian to do so, they help you compare your score to the average credit score in the UK (which happens to be 789). It’s generally good practice to keep an eye on your credit score as it can help you pick up on any unexpected banking mistakes, or even fraudulent applications being made in your name, which could damage your score.

What is your credit score?


It can be confusing when there isn't a standardised universal scoring system that we have all agreed to use. There are three main agencies in the UK that handle credit scoring. They are Equifax, Experian and TransUnion (formerly Callcredit).

They all will have a record of your credit rating and you can get a copy of your statutory credit file for free from any of them. This statutory report will include your basic credit history information — but it doesn’t include extra items, like fraud alerts or credit monitoring services, which you can get by paying a fee.

These credit reference agencies all compile credit reports in their own ways and they each use a different scale, so make sure you are comparing like-for-like. One thing is common across all of them though — the higher your credit score, the better for you, as it makes it more likely you’ll get a decent credit deal if you need one.

What is a good credit score in the UK?


With a good credit score, you'll have a better chance of getting credit at more favourable rates. As mentioned above, each credit reference agency uses its own scoring system.

With Experian, a ‘Good’ score is between 881 and 960 and for TransUnion, it’s 604-627. If you do use one of these agencies’ websites, you can expect easy-to-understand graphs and visual aids which will simplify matters for you.

Whilst it can be reassuring to get a good credit score, please be aware that this doesn’t mean you will automatically be able to borrow money, as different lenders will each have their own criteria in choosing customers.

What happens if you have a bad credit score?


If you are surprised by your score and think it’s too low, check there are no mistakes in your credit report — e.g. if you know you paid a specific bill on time but it is marked as a missed payment.

You can get this information corrected by letting the relevant company know and asking them to amend their records. They will then put a ‘notice of correction’ on your credit report with an explanation.

It’s also worth knowing what can damage your credit score so you can avoid making mistakes in advance — for example, ensure you don’t make multiple credit applications in quick succession or at the same time, as this can have a negative impact on your credit score. Also do bear in mind that if you are not registered on the electoral roll, this will also impact your credit score.

Credit score and getting a loan


Whether you are after a loan, a credit card, a mortgage, or any other kind of credit, the lender will likely check on your credit score. They use this number as a way of understanding how effectively you’ve managed credit situations in the past. With a bad score, it’s likely that banks and lenders will reject your credit applications. On the other hand, with a high credit score, you will find it easier to borrow money.

You can check your own credit report as often as you like without it affecting your credit score — this is an example of a ‘soft’ inquiry. In contrast, a ‘hard’ enquiry is when an outside lender is checking your credit, specifically to consider you for a loan or a credit card. These do impact your credit score so you do want to pay attention to how often you’re applying for credit and space out these inquiries where possible.

Benefits of open banking over credit score


Now that you’ve learned a bit more about credit scores, you might be feeling a bit downhearted if yours is lower than you’d hoped. But this doesn’t mean that you’re stuck. Open banking allows people with challenged credit scores to find options that they may not be able to access through traditional means.

If you have a low credit score, you’re part of an underserved community and we at Salad Money aim to remedy that by using more modern technology. We balance the scales by using open banking which is a secure online system that helps Salad Money decide if you can afford a loan by looking at your current income and expenses

Open banking is a new service, fully regulated by the FCA, which is completely under your control; you choose to share your information so that we at Salad Money can assess you fairly, without using or affecting your credit score in any way. It’s easy to use: simply select your bank, log in with your details, click the account you pay your salary into, and give Salad Money permission to view your transactions. It’s all automated too, so there’s no waiting around to get a decision — you’ll find out in minutes. Your application is judged on your current financial situation, instead of your longer-term history which a credit score would be based on. We think that’s fairer and we’re here to help. Learn more and apply to Salad Money.