Are credit scores overrated?

Published by Adam Williams on 18 July 2017.
Last updated on 18 July 2017

Man checks credit score on a tablet computer

Checking your credit score is increasingly popular, with some consumers paying a £15 monthly fee to do so. Is this necessary, or are there cheaper ways to keep your finances in order? 

Most people will have seen adverts advising us to take control of our finances and shell out for a credit score subscription service.

The advertising campaigns of credit reference agencies have clearly been working as a poll of Moneywise readers found that 25% now check their score on a monthly basis. But is this really the best – and cheapest - way to track your financial wellbeing?

What’s contained in your credit file?

Credit files are compiled by each of the three major credit reference agencies - Callcredit, Equifax and Experian. They include basics such as name and date of birth, plus more detailed information, including:

  • How much you currently owe, including credit cards, loans and mortgages
  • What financial products you have applied for recently
  • Details of any bankruptcies, County Court Judgments (CCJs), defaults or missed payments
  • Financial links to others, such as joint bank accounts with your partner.

Your credit score is based on the information held in this credit file. Each agency scores you differently but in general the higher your score, the less of a financial risk you’re perceived to be.

Having a poor score can often make it difficult to get credit from mainstream providers, or mean that you are charged a higher rate than other customers.

It can also make it difficult to take out a mobile phone contract as you are often credit checked by your network during the application process.

There are many misconceptions about what affects your credit score. Research by Equifax shows that 53% of men and 50% of women incorrectly believe that living with someone who has bad debts will harm your credit score – this is only the case if you have joint accounts with that person.

Also, 36% of men and 33% of women wrongly think that your credit score can be affected by previous occupants at your address.

What do lenders actually consider?

It is important to remember that banks look at a wide range of factors before they decide to lend to you, not just your credit score. The criteria used to judge you can vary between providers as each targets different types of customer.

Moneywise asked some of the UK’s biggest providers what they consider before approving a personal loan. As well as your credit score, the major providers say they will consider any existing accounts you hold with them, plus previous dealings you have had with the organisation.

Typically lenders focus more on your recent financial history, but the information held in your credit file goes back six years.

Some lenders delve deeper than this. Nationwide uses other criteria such as the demography of the local area in its decision process, while RateSetter has the ability to search social media profiles in some instances.

Each time you apply for credit a mark – known as a footprint – is left on your file. These remain on your file for a whole year. A lot of footprints on your file within a short period can be seen as a negative by lenders and can make it harder to be accepted in future.

Yet research published by TSB shows that many personal loan providers, for example, will only offer borrowers a personalised loan rate quote after performing a “hard” credit check.

Which credit agencies does your provider use?

All the lenders we asked use at least two credit agencies. See the table below for the full details. 

Provider  Callcredit  Equifax  Experian
Bank of Scotland  
Barclays  
Clydesdale Bank  
First Direct
Halifax  
HSBC
Lloyds Bank  
Nationwide
NatWest
Ratesetter  
Royal Bank of Scotland
Sainsbury's Bank
Tesco Bank  
The AA  
TSB  
Ulster Bank
Yorkshire Bank  
Zopa

 

 

Source: Moneywise, 12 July 2017

Do I need to pay £15 a month?

If you’re about to apply for a large loan or mortgage then you may want to check your credit file with one of the agencies to make sure the details held are correct.

Both Equifax and Experian offer subscription services which cost around £15 per month and give users unlimited access to their credit file (Callcredit doesn’t offer this service). But while these agencies promote their fee-paying services, there are cheaper ways of accessing your credit file. 

Cost of accessing your credit file

Provider  Individual one-off report  Monthly subscription  Free access via Rating
Equifax £2 £14.95 ClearScore Scored out of 700
Experian £2 £14.99 CreditMatcher Scored out of 999
Callcredit £2 Not available Noddle Scored out of five

Source: Moneywise, 12 July 2017

Callcredit, Equifax and Experian are all legally obliged to provide you with your statutory credit report for a fee of £2. This will outline what personal details the agency holds about you, your financial links to other people, what financial products you currently have, any missed payments and what search footprints you have on your file.

But each of the major agencies also has a free subscription alternative, although they offer less information than paid-for subscriptions. These are ClearScore, CreditMatcher, and Noddle.

What can I do to boost my credit chances?

There are a number of steps you can take to boost your credit score. Some top tips include:

  • Registering to vote – being on the electoral roll makes it easier to confirm your identity and will boost your credit score.
  • Closing unused credit accounts – having old credit cards (even if they have a small or no outstanding balance) can drag down your score.
  • Making sure your details are correct – credit files may sometimes contain incorrect information, so make sure to check whether these are up-to-date before applying for a major product such as a mortgage.
  • Maintaining a stable lifestyle – moving around frequently or going in and out of debt regularly will negatively affect your chances of getting finance. Make sure you clear existing debts before applying for more credit.

Moneywise verdict

It’s important to keep your finances in a healthy state, especially if you’re about to apply for a mortgage or large loan. However, for most people there is no need to pay £15 a month and to keep such close tabs on your credit score.

Instead, consider using that £180 a year subscription fee to pay down your debts or increase your savings pile. Then make a one-off check before you apply for any credit, to make sure there are no unexpected surprises.

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