How Does Credit Scoring Work?

Credit scoring can be confusing. Firstly, we hear about credit reports and credit scores and it can be difficult to know what they are and what the differences between them are. Then we might wonder how scores are calculated and why some people get better ones than others. It is a good idea to be aware of how it all works so that you are able to make sure that you do your best to keep your looking good.

What is a Credit Score?

There is not a standard credit score, so it is not something that we can really define. It is a concept that has been invented really. We do all have a credit record and that shows our borrowing history and other information about us and some people will look at this to make judgements of us. They do not all have a standard way of scoring you as such but each will look for different things and have different ways to judge you. Generally, they will be looking to see whether you repay your loans on time, how many loans you have, whether you make other payments on time and things like this. They will all look at slightly different things and have slightly different criteria as to how they judge you.

Who Looks at it?

There are lots of people that look at your credit report and you might be surprised at quite how many. The main one people think about are lenders as they will take a look at your credit report to see whether you have had loans before and repaid those on time as they will want to make sure that you can repay them on time. However, there are others that will also be interested in your credit record too. If you are looking to rent a home then a potential landlord will take a look to see whether they feel that you will be capable of paying the regular rental payments that they need. If you are changing or signing up for utilities then the suppliers will look to see whether they feel that they can trust you to make the payments. If things look really bad, they may insist that you have a prepayment meter. Insurers will also check and if things do not look good, they may make you pay in advance in a yearly lump sum rather than allowing you to make monthly payments. Potential employers may also take a look. This could be more for ID checking purposes but they might want to see your credit details too. This could be especially true if your job involves working with money.

How Can it be Improved?

So, you can see that having a poor credit record could have a really detrimental impact on lots of things. Therefore, it is worth trying to work hard to make sure that yours stays as good as possible. As we are not completely clear on what people are looking for, it is a bit of guess work, but common sense comes in to play as well. We know that people will want to see that we are capable of dealing with money well. Therefore, making payments on time, not having too many loans and things like this can help it to look really good. It can be wise to take a look at it yourself and think about whether you think it looks good and what stands out to you as needed improving. There might be things you can work on right away and things that will take some time, so you will need to have a think about what action you want to take and what might be the most impactful.

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