It’s easy to get confused when you’re looking at your credit score. There’s a lot of credit terminology that could be unfamiliar, not to mention US terminology mixed in with ours here in the UK! But it’s actually all a lot more simple than it looks, so Loqbox is here to help translate 15 common credit terms that are really useful to know.
1. What is a credit score?
OK, it might seem strange this is about credit score terms and we’re starting with the term ‘credit score’! But the reason is because there can often be confusion between a credit score and a credit report or credit history (spoiler alert, more on those later).
You have three credit scores, one from each of the main credit reference agencies (Equifax, Experian and TransUnion). And your credit score is a number which helps you to understand how a lender may view your creditworthiness, based on the data that your credit report holds. The number will often be shown on a scale with sections that will name your score as “excellent”, “good”, “fair” or “poor”.
It’s not an exact science, because at the end of the day it’s the lender who makes the final decision of whether to lend to you (or not). But as a guide, the higher your score, the more creditworthy you are seen to be.
Having a “good” or above credit score across Equifax, Experian and TransUnion suggests that your credit reports are looking healthy and you’re more likely to be accepted for credit. Not only that, but the better your credit score, the more likely you’ll be offered better interest rates and limits will be better. Check here for more information on what a credit score is, how they are calculated and what affects them.
2. What is a credit report?
Equifax, Experian and TransUnion each hold a file of financial data on you, and this information is used to create your credit reports.
A credit report is a detailed account of your credit history (see below), as well as information like your address history, records of any missed payments, defaults or CCJs (county court judgments), and the people who you may have joint accounts with.
This information is quite complex to understand, so that’s why the credit score system exists. Your credit score is a way of scoring the information in your credit report to give you an idea of how likely you’ll be accepted for credit applications.
3. What is a credit history?
Your credit history is the evidence of how you’ve borrowed and repaid credit in the past.
This is important information for lenders to know, because they want to be confident that you will repay their loan, credit card, mortgage or new vacuum cleaner on finance (if that’s what you’re after).
The companies who you use to borrow things on credit (like phone contract providers or utility companies) will send your history of credit use to either Equifax, Experian or TransUnion. Sometimes they work with all three; sometimes it’s just one or two.
Using this information, the credit reference agencies (we’ll get to those in a bit) are able to keep your credit reports up to date and calculate your credit scores.
Something to be mindful of is that missed payments, defaults and CCJs will stay on your credit history for six years. We know that this can feel deflating to read, but the positive news is that it will be removed after six years (and these issues are less important as time goes by). You can always build your credit score up by making sure you look after your finances going forward.
4. What is a credit utilisation rate?
This basically means how much of your credit limit you are using. So if the total amount of money you are allowed to borrow on a credit card is £1,000 and you have used £400, your credit utilisation rate is 40%. It is suggested that you want to keep your credit utilisation rate below 25%-30%, but really, the lower the better! Your credit score can be reduced if you are using too much of your credit limit.
So if you have a credit limit of £1,000, get that down to below £250 to see a positive impact on your credit score (keeping it under 25%). This will let lenders see you can manage credit well and aren’t borrowing beyond your means.
Loqbox Grow can help you to boost your credit utilisation rate. You can learn more about that here.
5. What is a credit reference agency (CRA)?
Credit reference agencies (CRAs) calculate your credit scores, and make your credit reports available to lenders to run credit checks. In the UK, there are three main credit reference agencies: Equifax, Experian and TransUnion.
They are three competing businesses that don’t share your data with each other, and each agency has their own way of calculating credit scores. So if you find your score is a really high number with Experian but not as high with TransUnion – don’t panic. They use different ranges of credit score categories.
Loqbox has put this table together for you to compare your three scores):
Check out our blog to find out more about credit reference agencies: who are they, what is the difference and which one do lenders use. In short, these agencies collect all the information about you and make it easy for lenders to check on your creditworthiness because it would be too complicated and lengthy for the lenders to do all of this themselves.
6. What is an account age?
This is the amount of time that a credit account has been open. Lenders can look at the age of your oldest account to see the length of your credit history.
The longer your credit history the better, because this lets lenders see more of your past experience of handling credit. If you close your oldest credit account, your credit history will shorten (showing your oldest account as the next longest you’ve had open instead).
7. What are reported accounts?
Your reported accounts are all the credit accounts you have open under your name – bank accounts, credit cards, loans, utility bills etc. Reviewing this is a good way to check you’re not the victim of fraud!
There may also be an account status that shows whether a credit account is open or closed. It also gives an indication of how you’ve used the account (up to the point of the last update reported by the lender). These updates can show that you have “paid as agreed” or “not paid as agreed”, for example.
8. What is your balance?
Your balance is the amount you owe on an account (at the last reported update by a lender). This could be different to the actual balance on your account. It depends on when the lender reports to the CRA – this update process can be a little slow, so give it at least 45 days to be reported to the CRA and then to start showing it on your credit report.
9. What is a bankruptcy filing date?
This is the date that a bankruptcy petition was filed on your public record. The debt charity StepChange has a timeline of the process of bankruptcy here, but the golden rule for your credit report is that it should disappear from your record after six years. Check your report after this time to make sure it’s been removed.
10. Time on electoral roll
“Wait! What does voting have to do with my credit score?”
It’s nothing to do with who you vote for – your political values are not affecting your score in any way! But being registered to vote is how Equifax, Experian and TransUnion cross-reference your address history.
If you’re not already, get signed up to vote here. Or if you’re not eligible to register, you can ask the credit reference agencies to add a notice of correction to explain your situation.
11. What is a credit limit?
Your credit limit is the total amount of credit you have available to you. This could include credit cards, store cards and other lines of credit. The combined limits for all of these credit lines will make up your credit limit. How much of this amount you are currently using is your credit utilisation rate (see point 4 for more info).
12. What does a notice of correction mean?
If there is an issue on your credit report that you’d like lenders to be aware of, you can ask the credit reference agency to add a notice of correction. It’s like an official memo to explain the cause of things like a missed payment (i.e. due to you having a medical emergency), or the reason why you’re not registered on the electoral roll (which affects your address history).
13. What is a credit search?
Also known as a credit check or credit enquiry, this is when a lender or creditor does a credit check search on you. They need your permission to do this, so it’s typically when you make an application for credit to decide whether to lend to you or not. Searches can be hard or soft. Hard credit searches affect your credit score, but soft searches won’t. You can read more about soft vs hard credit checks here.
14. What does Cifas mean?
Cifas is the UK’s Fraud Prevention Community. If you unfortunately become a victim of identity fraud and someone has taken out a debt or purchase in your name, you may find a Cifas notice added to your credit reports saying that you are a ‘Victim of Impersonation’.
Don’t worry, this isn’t a bad thing – it’s there to help you when you’d like to apply for credit in the near future. This tells the lender that you are the victim in the situation, and that further investigation should be done to check the fraudster isn’t still using your details. It’ll stay on your report for 13 months but you can contact Cifas if you’d like further protection.
15. What is a financial association?
Also known as a financial connection, this is someone you know that you share a joint account with. You’ll find yourself financially associated with people you share things like bank accounts and pay utility bills with.
It’s important to know that your financial connections can bring down your credit score if they have a bad score themselves. So if you notice any exes or previous housemates that you no longer live with showing on your report, ask the credit reference agency to remove them!
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