Prepaid Credit Cards UK

People talk all the time about having a good or bad credit score, but what is a credit score? And how does it work?

A credit score, is a statistical analysis of someone’s credit files. It is based on credit report information held by credit companies such as Experian, Equifax and Callcredit. This credit report information is received from companies that the individual has had dealings with in terms of loans, mortgages, and other forms of credit, and tells whether they made regular payments, or if they missed any payments, or had problems repaying the debt. This information is then combined with data showing how much a person earns and what already existing debt they have, to assign a numerical score to them.

Companies such as banks use a credit score to decide whether they are going to accept someone as a customer for a new line of credit. They do not have to reveal the minimum credit score required for an applicant to be accepted, or to reveal to the customer what their credit score actually is. They use the credit score to help them evaluate the potential risk posed by lending money to a specific consumer, and to help them mitigate losses due to bad debt. They can also in some cases use credit scores to determine how large a loan they are willing to make to an individual, and what interest rate the person will be charged, and for things such as bank accounts and credit cards, what credit limit will be set.

For consumers, this complexity and differing acceptance levels, means it is very hard to know in advance if they have a high enough credit score to be accepted for credit with a lender, and if they are accepted, what level of credit will be offered, and what interest rate they are likely to be charged.

Many other companies use credit scoring as well, not just banks. If you apply for a new mobile phone contract, or want to buy a sofa suite and pay for it over several months or years, and even if you’re applying to a landlord to become a tenant in a rented property, you could find that a credit check will be performed to make sure that you will not be too great a risk to the company who are selling you the phone contract, furniture, or rental property.

Credit scoring is regulated by the Financial Services Authority, who keep a close watch on how companies use this information to maintain a fair level across the board.

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