In the past your credit score was only accessible by a select few, such as credit card companies or mortgage providers.  It was one of life’s big mysteries, but what is it?

A credit score is a system that allows companies who could in theory lend you money or give you credit, to establish your ability to repay any money/credit that they give you.  All the information they receive about your credit history is put in a report and this is weighed up against millions of other people’s credit reports and you are given a credit score.  This is a number ranging from 350 – 800.  The higher the score, the more likely they think you will be able to pay on time and that you wont default on your payments.  Your credit score will be amended as more information is added to your credit report. 

There are five main areas that are used to establish your credit score.

The most important thing in securing a higher credit score is to ensure you pay your bills regularly and on time.  They types of things taken into account in this area are, loans, mortgages, credit cards, store cards and mail order.  Other things that are taken into consideration at this point are bankruptcy, repossession orders, debt collection orders, court orders such as unpaid child support and arrestment of wages order etc.  Remember the way to a higher credit score is to pay your bills on time!

 This section is concerned with how much you are in debt to your creditors.  If you have reached the limit on the credit available to you, then this could imply that at some point in the future you may be unable to repay your debts or indeed make your regular payments on time.  This area also scrutinizes how much of your debt has already been paid off and how much of your debt is outstanding.  Normally, in this area your score will not improve even if you close a credit account with a zero balance.  The important thing to remember here is to get a better credit score you need to keep the balance on your credit cards low.

In this area, you will get a higher score, the longer you have had your credit accounts.  The ages of your credit accounts are taken into consideration in this section.  The average age of all your accounts and the age of your oldest account are used to calculate your credit score, even old accounts that are no longer used are taken into account.  Here, the ideal way to raise your credit score is to establish and maintain good credit and keep your accounts in operation. 

When you apply for new credit, a credit history check is instigated and each inquiry is logged on your credit history report.  The more new credit applications listed on your report the lower your credit score will be.  Having said that, some inquiries are not taken into consideration in your credit score.  These include requests from companies you already have credit with, potential employers, and companies for pre-approved offers.  When you are shopping around for the best loan rate, some requests are treated a single inquiry.  The best way to get a higher credit score in this section is to only apply for new credit accounts and open new credit accounts when you need them.

This section analyses how many credit accounts you have and what type they are.  Depending on how well you comprehend and utilise this information in building your financial strategy, your credit score will have an impact on your credit score.