Your Quick Guide to Credit Scores

Whether you like it or not, credit scores matter. It is especially important if you're planning to take out a personal loan or if you're applying for a new mobile phone plan this 2015. It is therefore important for you to understand how credit scores work before jumping on any financial decision. Below is your quick and beginner guide to credit scores.
What is a credit score?
Contrary to popular belief and what some so called experts tell you, there are no universal credit scores. Lenders and mobile providers are not using one single credit score when evaluating your applications. They don't consider all your financial advantages and disadvantages but instead they have their own different criteria that dictate their decision making.
In short, the belief that there is a credit blacklist is false and good borrowers do not always get credit. Just remember that each lender or provider has their own scoring system. If one lender rejects your application, it doesn't necessarily mean you'll get rejected by the next lender. Either way, it's important to know what affects your credit score because having a good standing credit rating will make your financial life easier all in all.
What affects credit scores?
While you won't know exactly how one lender or provider's credit scoring works, it pays to know key factors that affect your credit score. These factors are considered things that may affect your likelihood of getting approved for a loan or a mobile phone contract and they include:

  • No history - If you have no history or if it's your first time applying for a credit card, for instance, expect a low credit score because you have little to no evidence as a responsible borrower.
  • Credit report errors - One minor error in your credit card report and that might just ruin your chances of getting approved. It is even more dangerous if the errors are serious like one caused by identity fraud.
  • Late payments - Obviously, late payments reflected on your credit report reveals you as an irresponsible borrower which lowers your credit score significantly.
  • Excessive applications - Avoid applying for too many credit applications if possible because multiple rejections may hit your credit score. It would only make you look like you are desperate which many lenders do not favor.
  • Excessive open accounts - Lenders often see multiple open accounts as you having the tendency to borrow more than you can afford or manage.
  • Financial judgments - If you have court judgments because you were unable to repay a debt, that is also bound to affect your credit score.

What does not affect credit scores?
Credit scores are confusing and complicated because of the myths surrounding what affect it. To simplify it for you, below are factors that are believed to affect credit rating when in fact they don't.

  • Salary
  • Parking fines
  • Savings balances
  • Relatives' financial history
  • Student loan
  • Old defaults or late payments

How do you know your credit score?
Whether you're just starting out or you've been borrowing for a while now, it is always a must to check your credit score first before applying for any financial product. You can do so for free at reference agent websites such as Experian or Equifax. These agencies are independent which means that there are no biases involved. They gather your financial information from financial institutions and give you a comprehensive report of your credit score. If you want an even more detailed report on a monthly basis, you may need to pay for a monthly subscription fee.
What to check on your file?
As soon as you have a report on your credit score, it's time to thoroughly investigate the details for minor and major errors. Once you sport any type of error, report it immediately to respective agencies so it can be corrected. Doing this step often makes a lot of difference on your credit score so make sure you check everything on your file.
In the event that the agency failed or refused to change the error on your file, you can write a complaint or comment on the file yourself. Just write "notice of correction" or you may also file a complaint to the Financial Ombudsman.