In this week's millennial money episode, I ask financial expert Damien Fahy about credit scores. What is a credit score and how do you go about checking it?
What is a credit score?
A credit score isn't a universal score like everybody thinks. Your credit report lists all of the types of credit you have taken out and a lender or credit checking agency will score you differently based on their own criteria. The report will list the status of any credit that you currently have or have had in the past, including whether you have missed any payments.
Why does your credit score matter?
The riskier you are the more likely it is that you'll be refused credit. If you had a friend that always borrows money and never pays you back, you are unlikely to lend to them again. Credit scoring is the same thing, a lender is unlikely to want to lend you money if you have a poor history of managing debt.
Your credit report and your credit score are ways in which a lender or credit checking agency can judge you and so it is key that you regularly check it. It used to be that you always had to pay to have your credit report checked, but thanks to new rules and the wonders of competition you can get free credit reports from the likes of Noddle or Experian. They're online, they're FREE and they're quick. Once you have received your credit report you need to check that it is correct. If something doesn't look right you should query it as you may have been the victim of identity theft. It is important that you check your credit report before taking out credit such as a mortgage or a car because if you subsequently get declined it could further affect your credit report.
Check your credit report annually
You should check your credit report at least once a year, consider it an annual spring clean of your finances. If you spot any errors or if something looks suspicious then sites like Noddle and Experian will explain the steps to rectify the issue. It is important you do this to eliminate problems getting credit in the future.
Why you get different credit scores with different credit check agencies
It is likely that you will get a different credit report score from different providers such as Experian and Noddle. This is because, despite popular belief, you do not have a universal credit score. An individual's credit score varies from provider to provider as they have different factors that they consider when generating a score.
When does your credit report get checked?
You will be credit checked for a variety of reasons such as:
- Opening a bank account
- Applying for a loan
- Utility bills
- Car finance
- Phone bill
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