Five Questions About: Credit scores

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The Independent Online

What is a credit score?

Your credit score, or rating, is based on information held within your credit file and shows lenders how well you have handled borrowing.

What difference does my credit score make?

It can mean the difference between being refused or accepted for credit, and will also affect the interest rate you are offered. For example, a borrower with an excellent credit score could qualify for a competitive credit card, with 13 months at 0 per cent on purchases and an annual percentage rate (APR) of 16.9 per cent. If they only made minimum payments over three years, they'd pay £190 in interest. However, someone with a poor score might only qualify for a starter credit card, with an APR of 29.9 per cent. The same debt would cost them £751.80 in interest over three years.

What gets included in my file?

As well as your recent borrowing and payment history, it will show whether you're on the electoral roll and what other names you've been known by. It will also flag up any individuals that you are financially associated with. Public record information such as CCJs, IVAs and bankruptcies is included, as well as any repossession orders made against you.

Can I improve my score?

If you want to boost your score, pay bills on time and in full, so set up direct debits. Close credit cards or other accounts that you no longer use and avoid leaving a high balance outstanding on cards you do use. If you can repay a credit agreement ahead of schedule, that can also make a difference.

What else do lenders consider?

You may have an exemplary credit history and still get turned down for credit. Lenders look at a number of factors, such as your income and the time you've been in your job.

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