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What is a credit score? Well, it is a very important indicator of your financial status. From credit card and financing applications to loan requests for a car or a property; your credit rating plays an essential role in determining the likelihood of your application being accepted. No doubt you have heard the term mentioned multiple times, but have you harnessed the power behind knowing and understanding your credit score?

What is a credit score in simple terms?

A credit score is a calculation, ranging between 300-850, that paints a picture of how reliable a borrower you would make. Essentially, it describes, in a number, how well you have managed your finances and whether you can be trusted with a loan. Companies and mortgage providers use credit scores when analysing eligibility.

So, what is a credit score? In summary, it is a vital factor that influences your eligibility for a mortgage, the interest rate you may qualify for, and the overall terms and conditions of the loan.

We are sometimes asked, “What is the highest credit score?” Again, this will vary from one agency to another, as they have varying higher upper rates.

How is a credit score calculated?

The calculation behind your credit score will vary from lender to lender. Still, they will usually use the information they hold about you, your credit report and data from an application form you provide as part of the equation. The lender can then transform all of this information into a score and decide eligibility based on their lending criteria.

What affects your credit score?

Your credit score will fluctuate depending on how you manage your finances. When answering “What affects your credit score,” some of the factors that impact your credit rating include:

  • Whether you have missed payment dates
  • Have country court judgements or defaults against your file
  • If you are registered on the electoral roll
  • The age of your credit history

And more.

How to check your credit score

As a general rule, you should be reviewing your credit report annually so that any issues can be resolved swiftly, reducing the possibility of a loan or mortgage application being rejected.

You can request access to the information held about you from Credit Reference Agencies, with the three main agencies being:

  • Experian
  • Equifax
  • TransUnion

A “what is my credit score request” will cost you no more than £6 in total and will give great insight into how you are viewed by potential lenders and what, if any, actions need to be taken.

What is a good credit score?

Since calculations surrounding credit scores differ, “what is a good credit score” will vary from one agency to another. For example, a good score on Experian begins at 700. A score of 800 with this company is considered to be excellent. Comparatively, a good credit score from Equifax starts at 660.

What is a bad credit score?

Once again, what is a bad credit score will depend on the company and how they use the information they have about you. If you are using Equifax to monitor your score, anything from 379 and lower is considered to be poor or very poor. Conversely, Experian considers anything below 670 to be fair or bad.

How does a credit score affect mortgage applications?

Unfortunately, there isn’t a one-size-fits-all answer that guarantees your mortgage application will be approved if you reach a specific credit score. Of course, the higher your rating, the more reliable and trustworthy you will appear to lenders.

However, mortgage lenders are interested in more than your overall score. They will also be looking for evidence of payment defaults or county court judgements (CCJs) as a way of calculating the risk involved in lending money to you. While a low credit rating may make it more challenging to obtain a mortgage, it is possible. Our team of mortgage brokers can use their vast knowledge, experience, and considerable contacts to source a lender even if you are considered to have bad credit.

How to improve your credit score

Once you have learned “what is my credit score,” there are some easy ways you can improve your credit score, as well as some longer-term goals you can aim toward that will make you look more appealing to lenders.

Some of the simpler tasks to check-off the list include:

  • Making sure you are registered on the electoral roll
  • Paying all of your bills on time
  • Checking the details on your credit file and requesting amendments if any of the information is incorrect 
  • Ensuring you aren’t linked to someone with a poor credit score
  • Keeping an eye out for fraudulent activities

Other ways you can work on increasing your credit rating that may require a little more time and effort, include:

  • Reducing your current debt levels
  • Trying not to move residencies. The longer you stay at one address, the more reliable you appear to lenders

Improve a thin credit file

Unfortunately, not having a credit history, or having a ‘thin’ credit file can also hurt you. A thin file is a cause for concern for lenders as they have little evidence to analyse to ascertain whether you will be able to keep up with repayments.

Therefore, if your credit file is thin, we wouldn’t recommend submitting any mortgage applications. Instead, spend some time building your credit file so that you have some really positive evidence to showcase when you do apply for a mortgage.

Some credit-building exercises you can go through include:

  • Signing up for a credit-builder prepaid card
  • Applying for a credit card or loan that targets individuals with a thin credit file
  • Submitting a loan application with a guarantor

It may feel counterintuitive to get into debt to be approved for a mortgage. However, lenders need to see evidence that you can manage your finances well enough to meet your repayment plan consistently.

When you understand the power credit scores hold, you can harness it to make yourself more desirable to lenders.

Contact us for help

Take control of your mortgage options by understanding “what is a credit score” and “how does a credit score affect mortgage applications.” Harness the power of your credit score today. Contact ams: today at 0121 4000 052 or visit our website to learn more at https://www.amsmortgages.co.uk/contact/. Our expert team will provide valuable guidance on improving your credit score and securing the best mortgage terms. Do not miss the opportunities available to you. Get in touch now and let us help you achieve your homeownership goals.