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Credit Scores Explained

July 20, 2016

As if the world of credit wasn’t daunting enough, it can feel as though your borrowing history comes back to haunt you each time you apply for a loan. Your credit score can have a dramatic impact on the interest rates available to you, so understanding the ins and outs of credit scores can make all the difference in terms of finding a competitive finance deal.

Today, the finance experts at The Car Loan Warehouse are cutting through the jargon and explaining exactly what a credit score is and what it means for you. We’ll look at how you can find out what your current credit rating is, as well as talking you through a number of simple and effective ways to improve it going forward. Take back control of your finances with our helpful guide – you won’t regret it!

creditscoresexplained

What is a credit score?

A credit score is a tool used by lenders to help determine whether you’re eligible for a credit card, loan or mortgage, and at what interest rate. The score is calculated using your credit report, which lists your borrowing history, as well as financial information on your application – such as your occupation and income.

Each loan company uses their own formula when calculating custom credit scores, meaning these are subject to change according to each lender. Your credit score can improve or deteriorate depending on your own circumstances, too – making it all the more important to keep track of your current rating.

What is a good credit score?

Credit scores from independent credit reporting agencies, such as Experian, range from 0-999 and provide an indication of the level of risk that your credit score carries. The higher the score, the less of a risk that you pose to lenders – meaning you’ll have a greater chance of accessing the most competitive deals available.

Credit score bands and ratings are as follows:

  • Excellent: 961 – 999
    There are no guarantees when applying for a loan, but you should qualify for the very best credit cards, loans and mortgages that are available
  • Good: 881 – 960
    You are likely to qualify for the majority of loans, but the most competitive deals may not be available to you
  • Fair: 721 – 880
    You may be offered reasonable interest rates, but your average rating means you’re likely to have low credit limits
  • Poor: 561 – 720
    A poor credit score means you’re a high-risk borrower. Your application could still be accepted, but you’re likely to be subject to higher interest rates
  • Very Poor: 0 – 560
    Acceptance for most credit cards, loans and mortgages is rare in this category. Some lenders will still offer you a finance deal, but the APR% you’re offered will be higher than for any other credit score band

How to find out your credit score

Finding out your credit score before you make a loan application is vital. A large number of credit applications in a short space of time and frequent loan refusals will cause concern for future lenders, so don’t apply for a loan unless you’re confident that your application is correct and up-to-date.

If you’re wondering how to check your credit score, look no further. Finding yours couldn’t be easier with the help of independent credit reporting agencies such as Experian. These credit reference agencies hold your credit report and can share this information with both you and prospective lenders. You may not even realise that your credit score has taken a blow recently, so make sure you stay informed with Experian’s free credit score check.

Related: 5 things you didn’t know were killing your credit score

How to improve your credit score

Once you know your credit score, it’s time to take the necessary steps towards improving it – assuming there’s work to be done. If your credit score is less-than-perfect, it’s time to rebuild your rating and demonstrate to credit companies that you’re a low-risk borrower and deserving of lower interest rates.

The most competitive APR rates could be well within your reach in no time at all, and all it takes are a few simple steps. From registering yourself on the electoral roll to proving you can borrow and repay responsibly, you’ll be surprised how easy it is to increase your credit rating.

Related: 5 steps to a squeaky clean credit rating

Creditt scores

How to get a car loan with a bad credit score

It may seem easy to get approved for a car finance deal with an excellent credit rating, but what about applicants with a below average score? No legitimate lender will guarantee acceptance, but that’s not to say that the high-risk borrowers can’t find approval on the loan they need.

In fact, improving your sub-par credit score with The Car Loan Warehouse couldn’t be easier. We’re specialists in car finance for bad credit holders, and we’ll give you access to the UK’s leading lenders – with competitive interest rates and affordable monthly repayments, so you can start to rebuild that credit score.

Related: Bad credit car finance: what you need to know

Get your credit rating on the road to recovery by applying for a bad credit car finance deal today. Simply fill in our stress-free application form or discuss your options with our friendly and professional team by giving us a call on 0800 066 2888.

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About The Author

Jon Le Roux is co-founder and company director of The Car Loan Warehouse. Being a mad engineering and motorsport enthusiast, I spend more hours than is healthy, watching, reading or talking about cars, boats, motorbikes…..basically anything with an engine.