July 15, 2025 • 20 mins
Whether you’re applying for a mortgage, taking out a loan or signing up for a new credit card, one number carries more weight than many people realize: your credit score.
In this week’s personal finance edition of Merryn Talks Money, hosts Merryn Somerset Webb and John Stepek are joined by John Webb, senior consumer affairs manager at Experian and an expert on credit scores. Together they explore the world of credit scores—what they are, how they’re calculated, why they vary across agencies and the many ways they can shape your financial future.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to Meren Talk's
Your Money, the personal finance edition of Merin Talks Money.
In these bonus podcasts, we talk about the best strategies
(00:24):
for making the most of your money. I'm Merrin Sumset
Web and with me senior reporter and Money Distilled offer
John's Effect. Hi John, Hi mel Right. This week we
are tackling a topic suggested by Tala, an apprentice here
at Bloomberg who's been working on our team the last
few months. Tala is in her early twenties and says
the surprisingly frequent topic among her friends is credit scores.
(00:45):
I don't really have a credit history yet, how would
my credit score be determined? What fuck does go into
determining my credit score?
Speaker 2 (00:52):
And how do I even check my credit score? I've
noticed that when I check my credit score on different websites,
they vary.
Speaker 1 (00:58):
Why is that I'm a bit lost by this when
I literally do not remember ever talking about credit schools
in my twenties.
Speaker 3 (01:04):
John, No, but then we were plevileaged. Because the nineties
one a much better him for young people in general.
We don't have to worry about money really, because someone
was so cheap.
Speaker 1 (01:15):
Yeah, we could buy houses.
Speaker 3 (01:16):
Yeah, we could buy hosts.
Speaker 1 (01:18):
Aside the fact that the taller and everyonends are caring
about credit school maybe they're looking out mortgages. We'll talk
about that later anyway. So the question is how do
credit schools work? What are they? Do I have one?
Do I have several? How important is it? What does
it mean, what affects it the most? And how do
I make it good? So lots of questions here, some
of which John and I could answer alone, some of
which we quite clearly couldn't. So we've bought an expert
(01:39):
to help uts go through all the basics of this subject,
John Webb. John is the senior consumer refairs manager at Experience. John,
thank you so much for joining us today.
Speaker 2 (01:48):
Oh glad to join.
Speaker 1 (01:50):
So right back in the beginning, what is a credit school?
Speaker 2 (01:54):
There is not one credit score. So your credit score
is a number that is given to you by credit
reference agency like Experience, and there are others as well.
Equifax and TransUnion are the other two. So there's three
main credit reference agencies, and we will all give you
a number and it's a summary of the performance of
(02:14):
your credit report. So all the information that's on there,
how you've managed credit in the past six years or so,
and how much debt you are in, for example, right now,
and the number gives you a good indication of how
a lender will judge the information on your credit report
when you apply for credit.
Speaker 1 (02:33):
Okay, so this is a number. What is a good
number and what is a bad number?
Speaker 2 (02:39):
Well, that's an interesting question because there is not one
credit score. Don't judge the numbers side by side. Each
credit reference agency will give you their own experience. Is
out of nine hundred and ninety nine, So we will
give you a banding to say, you know, somewhere along
the lines of you're somewhere in the good or very
good or excellent category, for example, and your number just
(03:01):
summarizes it gives you a really good indicator of where
you sit on that banding. And you know, that's how
a lender will really look at that information say okay,
you know what we do. Think that's good and that's
how we base that number.
Speaker 1 (03:12):
Okay, So you're out of nine hundred and ninety nine.
Equifax and TransUnion are out of different numbers. So Eqfacts
I think is out of one thousand and TransUnion it's
slightly lower out of seven hundred and ten.
Speaker 2 (03:24):
Yeah, well, don't compare them side by side. It's good
to check them all and you can do it for free,
so you know, please do, but don't compare them side
by side and say, right, my experience score is this?
Why is my TransUnion score so low? Just view them
individually and see how you sit on the banding with
those credit reference agencies.
Speaker 1 (03:42):
Okay, And do any other organizations have credit scores for us?
I mean, for example, does my bank have a credit
score for me? Does my mortgage holder I have a
credit score for me? Are there other numbers around the
place that aren't with these three main unions?
Speaker 2 (03:58):
Yes? Well, just to make this, you know, even easier
for you, there are different numbers, but you will not
ever see those numbers. The only time the other number
is generated for you is when you apply for something.
So you'll apply, they will check the information on your
credit report plus your application form information, so really your affordability, salary, dependents,
(04:19):
other expenses and so on, and perhaps if you bank
with them already their own information and at that point
you apply, they'll generate a score for you. That's the
score that determines do you get accepted or not? What's
the interest rate going to be? What's the limit going
to be? But they don't tell you what that number is,
so you know, you'll know you were good enough if
you get accepted and get the good rates, you'll know
(04:41):
you are borderline if maybe the interest rate goes up
a bit at the end, or you don't quite get
the limit you want.
Speaker 1 (04:47):
Okay, all right, very useful, and I suppose the next
obvious question to ask is how are those scores built.
What goes into the building of the score. What are
the agencies looking at?
Speaker 2 (04:59):
The score is built on lender feedback, so they tell
us the credit reference agencies what's important, so you know
what's important in terms of your payment history if you've
made them on time, or in terms of the amount
of debt you have missed payments, court judgments. There's lots
of information that goes into calculating the score, but it's
(05:20):
based primarily on how we work with and experience hundreds
of lenders to figure out exactly what's important and how
we build that score.
Speaker 1 (05:29):
Okay, so your school will be good if you have
borrowed money always paid it back on time effectively.
Speaker 2 (05:34):
Yeah, A good track record of managing credit. So you've
had some sort of credit agreements in the past, you've
paid them on time, and possibly in an ideal world,
you have paid them off and closed them successfully. And
then that's kind of how you build your track record
of managing credit well, and that leads to generally a
good score. There are other things that obviously impact it,
(05:55):
so you know not just that, but how much current
debt you are in, for example, will have a big influence.
If you've got credit cards, how much you're borrowing on
those and how close you are to the limit and
so on. So your current debt levels have a big
impact on your score as well. But the history is
really important.
Speaker 1 (06:11):
Okay, I think there's an obvious question that comes out
of that. I want to ask the obvious question first
and then move on to asking you what makes your
credit rating bad. The first question is if you are teller,
for example, you asked us this question and you're in
your early twenties and you have never borrowed money before,
that means you don't have a credit score at all,
or it means you have a bad credit score.
Speaker 2 (06:30):
It's no, it doesn't necessarily mean you have a bad
credit score, So they're kind of what we call a
thin file, so where you just have very limited information,
which means the lender can make very little judgment about
how well you'll manage credit. So you know, we always
kind of talk then about the process of building your
(06:51):
credit history, and it's kind of step by step process
of getting some sort of information onto your credit report,
managing it well through those credits, and then building it
over time.
Speaker 3 (07:02):
There's anything you can do to boost the law, I mean,
it's something that obviously had about is make sure you're
in the electoral register or the voters roll and exactly.
You know, because as far as the first thing you
get crear that you don't like to be going for
a mortgage, I mean to having a mobile phone contract,
help all of these sorts of things.
Speaker 2 (07:21):
Yeah, it does, actually, and it's a good point because
in terms of building it, let's say, almost from scratch,
getting on the electoral role is probably the first thing
that I would suggest people do. So wherever they can,
of course, get registered on the electoral role. That's your
first bit. Your next bit is having a bank account.
It doesn't matter if it's got an overdraft, but as
long as you've got a bank account, it'll add some
(07:43):
information on there, but don't have any problems with it
if you can, so try not to go into unarranged
borrowing and so on that can cause an issue. And
then the next stage would kind of be thinking about
getting a credit card. And that's because if you use
that in the right way, and perhaps we'll talk about
that in a moment, is they're quite easy to get
and if you use them in the right way and
(08:03):
pay them off in full, you don't pay the interest
on it, and suddenly you've got a couple of accounts
plus electoral role, you're building up some positive information on
your credit reports. That's a great way to start that process.
Speaker 1 (08:15):
I think we had better go straight into what is
using a credit card the right way? I mean, I
think we would think using a credit card the right
way is buying stuff with it, you know, of not
being any interest. But you said that already. Is there
something else involved in the right way?
Speaker 2 (08:29):
Well, it's just to do with the balance and how
you use it on there. And of course this is
the right way for you know, me as a credit
reference agency, let's say, because what we want to see
and what a lender likes to see is a very
low balance but an active account. So the way to
do that is spending a few pounds every month on
(08:50):
something you would have bought anyway. So try not to
buy something that you wouldn't have wanted to buy normally.
That's how you kind of get into problems. But spend
it on something the food shop once a month, something
like that, pay it off in full every month, so
you don't pay the interest on it. And so if
you keep the balance slow, you keep it active, you
don't pay the interest. That's a great way to keep
(09:13):
your credit card running. Of course, there are people who
use credit cards to do their normal spend on that's
because they might get rewards points things like that on it,
and there's nothing wrong with that. But if you're spending
a large amount or getting very close to the limit
every month, then that can show on your credit report
and that could affect your credit score. So you probably
(09:34):
want to avoid that right before you apply for something important.
Speaker 3 (09:38):
That's interesting because this is another thing of read about,
this idea of not wanting to do too many things,
Like if you go to the personal finance websites, then
people often talk about who you apply for the new
buying account so you can get the sweach in bonuses
every six months or something like that. But then they
sort of say they don't do that. If you're about
to apply for either a mortgage or a personal loan,
(10:00):
the big condity, can you give us an idea of
what the kind of lee we as and that sort
of stuff? Is there any sort of gay is there's
a less less of a big deal and what's more
important to avoid?
Speaker 2 (10:09):
Yeah, so there's lots to that question. But the first
part is we generally say, because when you apply for credit,
it pops up on your credit report and it could
lower your credit score, and so we say keep those
two a minimum where you can. So probably a couple
every few months is a good idea. And so you know,
(10:30):
that's why we say probably a couple of months, two
three months before you apply for something bigger like the mortgage,
for example, you want to avoid applying for other types
of credit just so you don't have those applications pop on.
But the other part to your question is if you're
applying for something that you know has a value to it.
So let's say you're taking out a loan or potentially
(10:52):
even using buy now Pay later, or something that would
add a balance of debt to your credit report. You
again might want to avoid that before applying for something big,
just because of that will then impact into your affordability
how much you're currently borrowing those kinds of things.
Speaker 3 (11:08):
Yeah, one quick thing that you mentioned by an ope later,
what is this theatis of that at the moment? And
because I've not stayed fully abreast of this, and I
remember the sort of clown that stale stuff wasn't really
been clipt an eye And how's that change in or
what's going on with that?
Speaker 2 (11:26):
Yeah, that's an interesting question. But that there are by
now pay later lenders who are sharing with credit reference agencies,
now Klana being one of them. They share their information
with us, and some of the others do with the
other credit reference agencies as well. It doesn't factor into
the credit score we give you yet because the sharing
is so new, and there is regulation that is kind
(11:49):
of proposed and coming down the line, which may mean
that possibly next year twenty twenty six, they will be
regulated to share or by now pay later accounts with
credit reference agencies, So that might come down the line.
But it may be that if you use certain ones
they will share with a credit reference agency at the moment,
so you'll see those accounts pop onto your credit report.
Speaker 1 (12:09):
So let's talk about what makes your credit reading bad.
What are the things that actively make it bad? I mean,
I'm assuming things like coming account of good judgment against you,
a bankruptcy and iva, that kind of thing. But is
there anything else that will actively make it bad that
might not be immediately obvious to people like that.
Speaker 2 (12:27):
Yeah, of course, so these obviously are the things to
try and avoid where possible. We've talked about applying for credits,
so you know, lots of applications in a short space
of time, that's likely to drop your credit score if
you've got lots of new accounts as well, so we
calculate the average age of your accounts. So really what
we're saying is long running accounts are good. Loads of
(12:49):
new accounts can kind of impact your credit score quite significantly,
especially if they're under a year old. And then the
next part is payment history. It's a really big part
of your score, so missed payments, even one of them,
could impact your credit score by quite a lot. So
you know, really important to have the direct debits set up,
make sure things are paid on time, even the mobile
(13:11):
phone contract, you know, the smaller bills that you think, actually,
you know what, that's not going to have much of
an impact. It will still impact your credit report if
you miss it.
Speaker 1 (13:19):
Does that include your electricity bill and your water bill
and all that sort of thing.
Speaker 2 (13:23):
Yes, they are shared with credit reference agencies as well,
so you know, if you're missing those payments and also
incurring debt for missing those payments, yes, that will show
on the credit report as well. You talked about county
court judgments, so court judgments, anything to do with insolvency
like an IVA or bankruptcy will obviously have a significant
impact on your credit score. But the biggest thing that
(13:45):
actually does have an impact on your score is what
we call a defaulted account. So that's an account where
you haven't paid it in probably somewhere around three to
six months, and the lender has then closed the account
with an outstanding set as a default stays on your
report for six years from that point, and that has
a really big impact on getting credit. So, you know,
(14:07):
my biggest advice actually in that scenario is if you're
missing payments or you're going to miss payments and you're
in that place where you will go on the road
to potentially a default is speak to the lender straight away,
try and set some sort of payment arrangement up that
at least stops it going to a default. Or as
well as that, speak to a free debt advice provider,
(14:29):
your step change pay plan, someone like that who can
really help sort out you know, your kind of finances
and budget and so on, and find the right solution
for you.
Speaker 1 (14:37):
Let's say I'm playing for a mortgage and my credit
score with experience with all of them is not excellent
but very good. What's the difference in the interest rate
that I'm likely to get offered for a mortgage?
Speaker 2 (14:50):
That's a that's a very difficult question to answer, so well,
let's don't focus on that too much. And the reason
I say that is, like I explained earlier, what happens
is the lender doesn't see the score we give you.
They see the information on the credit report, but they
use that in conjunction with that your affordability information. So
you might have a huge deposit. I'm sure you've been
saving for a long time, so you've got that. Your
(15:12):
salary is great, your other expenses are minimal, and that
you know, together they calculate that and give you their
own score, and that might mean that you get, you know,
a very very good interest rate. If there is an
issue with affordability or with negative information on your credit report,
that's where you might start to see the interest rate
(15:33):
is getting a little bit higher when you apply. But
that's down to each individual lender, how they judge it,
how they you know, assess that score, and you know
what rate they give you. At the end, you're.
Speaker 1 (15:44):
Saying that there may be no difference between the interest
rate I'm offered if I'm very good or excellence. Are
so subjective, isn't it?
Speaker 2 (15:51):
It's well, I wouldn't say subjective because it's slightly so
I guess it's scientific in the sense that you know,
there's just it's a lot of data to look at
and judge, but each lender will be slightly different in
how they assess it. So I don't want people to
get hung up on the fact that they're twelve points
away from being in the excellent category, because that will
(16:13):
have very minimal impact on, you know, how the lender
judges the information. It's really about making sure your credit
reports in a good place and then obviously they factor
in the other information as well.
Speaker 1 (16:25):
Yeah, it's a bit late for that, John Binnis, because
we had target driven people and John and now the
second we finish here will be going online and we'll
be trying to find out what our score is at
each one if where it doesn't matter how far up
we are off Eklanent, We're both going for it and
it will be a competition. I'm going to be age
long before right now. Well, absolutely absolutely, he's already. I
don't know. We'll be finding out in the next ten minutes.
Speaker 3 (16:46):
And the all other thing I wanted to Johin was see,
if you do have buyed credit, how do you repeal that?
Like say, if i'd I don't know, a dodgy kind
of like yeah, you know in the twenties, but no,
you're a responsible adults. Should you start with?
Speaker 2 (17:01):
Well, look, the good news I'd start with is that
generally information on your report stays for six years, so
there's always light at the end of the tunnel. If
there's something negative, the thing I would say is key
is just keeping on tracks. So you might have some
negative stuff, it's about okay, can that negative stuff be
brought up to date? If you've been missing payments and
(17:21):
kind of turn that into a positive, keep that running well,
and depending on what it is, it might mean that
you focus on other accounts. So those basics that we
talked about earlier, you know, having the bank account, maybe
having the credit card, and just focusing on those and
keeping them running well, on time, paid, on time, balance
is low, and then at some point the other negative
(17:44):
information might drop off the report and it has less
of a negative impact on your score over time. So
it's kind of just focusing on doing good things while
you can and with what you can, and then it
will start to improve over time. The other thing I
would say, as well, as you know kind of when
we're talking about the negative bit well and the applying
for credit process is actually there are lots of services
(18:04):
available to search for credits or primarily credit cards, loans,
car finance, and in a way for mortgages as well.
But use comparison sites and eligibility services to check for
credits or we've got one. There are lots of them
out there, and the reason you use those is they
don't impact your credit score when you do the search.
(18:26):
It's a bit like searching for house insurance online. Their
soft searches don't impact your credit score, but they will
give you a very good idea of who will accept
you and what kind of deals you can get. And
you could even get pre approved as well, which is
always a delight to know before you actually apply, so
you know if anyone does, if anyone's looking for credit,
(18:46):
even if they're in a good place or they have
negative information, it's a great place to do your kind
of credit research. I know you said about ADMIN earlier.
It's more ADMIN, but it means that you know, you
get a really good idea of who you should approach,
rather than just applying to anyone who you've seen and
possibly getting refused.
Speaker 1 (19:02):
If I can look up my credit score this easily,
can other people look at my credit score?
Speaker 2 (19:08):
No?
Speaker 1 (19:08):
Why not?
Speaker 2 (19:09):
So when you say open an account with a credit
reference agency, we go through lots of checks to make
sure it's you that is setting up an account. To
check your credit report and score, we verify information across
public record information like electoral role account information to verify
that it's definitely you and if there's any issues with that.
(19:30):
We also go through further checks to check your ID
documents and possibly bills or statements as well to make
sure that we do not show anyone else your information.
Speaker 1 (19:41):
Okay, good, I'm sttle nervous about my electricity bill now
and everyone else looking it up, so I think we're
all good. John, thank you so much for being with
us today.
Speaker 2 (19:51):
We really appreciate it. Not glad to be here.
Speaker 3 (19:54):
Yes, thank you.
Speaker 1 (20:00):
Thanks for listening to this week's Marin Talks to Your Money.
If you like us show, rate, review, and subscribe wherever
you listen to. Podcasts also be showed following me and
John on x or Twitter at marinasw and John Underscore
step Bax. This episode was produced by Somemasadi, tala Amadi
and Moses and Production of Sport and sound designed by
Blake Maples. Questions and comments on this show and all
our shows are always welcome. Our show email is Merrimoney
(20:23):
at Bloomberg dot net
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to Meren Talk's
Your Money, the personal finance edition of Merin Talks Money.
In these bonus podcasts, we talk about the best strategies
(00:24):
for making the most of your money. I'm Merrin Sumset
Web and with me senior reporter and Money Distilled offer
John's Effect. Hi John, Hi mel Right. This week we
are tackling a topic suggested by Tala, an apprentice here
at Bloomberg who's been working on our team the last
few months. Tala is in her early twenties and says
the surprisingly frequent topic among her friends is credit scores.
(00:45):
I don't really have a credit history yet, how would
my credit score be determined? What fuck does go into
determining my credit score?
Speaker 2 (00:52):
And how do I even check my credit score? I've
noticed that when I check my credit score on different websites,
they vary.
Speaker 1 (00:58):
Why is that I'm a bit lost by this when
I literally do not remember ever talking about credit schools
in my twenties.
Speaker 3 (01:04):
John, No, but then we were plevileaged. Because the nineties
one a much better him for young people in general.
We don't have to worry about money really, because someone
was so cheap.
Speaker 1 (01:15):
Yeah, we could buy houses.
Speaker 3 (01:16):
Yeah, we could buy hosts.
Speaker 1 (01:18):
Aside the fact that the taller and everyonends are caring
about credit school maybe they're looking out mortgages. We'll talk
about that later anyway. So the question is how do
credit schools work? What are they? Do I have one?
Do I have several? How important is it? What does
it mean, what affects it the most? And how do
I make it good? So lots of questions here, some
of which John and I could answer alone, some of
which we quite clearly couldn't. So we've bought an expert
(01:39):
to help uts go through all the basics of this subject,
John Webb. John is the senior consumer refairs manager at Experience. John,
thank you so much for joining us today.
Speaker 2 (01:48):
Oh glad to join.
Speaker 1 (01:50):
So right back in the beginning, what is a credit school?
Speaker 2 (01:54):
There is not one credit score. So your credit score
is a number that is given to you by credit
reference agency like Experience, and there are others as well.
Equifax and TransUnion are the other two. So there's three
main credit reference agencies, and we will all give you
a number and it's a summary of the performance of
(02:14):
your credit report. So all the information that's on there,
how you've managed credit in the past six years or so,
and how much debt you are in, for example, right now,
and the number gives you a good indication of how
a lender will judge the information on your credit report
when you apply for credit.
Speaker 1 (02:33):
Okay, so this is a number. What is a good
number and what is a bad number?
Speaker 2 (02:39):
Well, that's an interesting question because there is not one
credit score. Don't judge the numbers side by side. Each
credit reference agency will give you their own experience. Is
out of nine hundred and ninety nine, So we will
give you a banding to say, you know, somewhere along
the lines of you're somewhere in the good or very
good or excellent category, for example, and your number just
(03:01):
summarizes it gives you a really good indicator of where
you sit on that banding. And you know, that's how
a lender will really look at that information say okay,
you know what we do. Think that's good and that's
how we base that number.
Speaker 1 (03:12):
Okay, So you're out of nine hundred and ninety nine.
Equifax and TransUnion are out of different numbers. So Eqfacts
I think is out of one thousand and TransUnion it's
slightly lower out of seven hundred and ten.
Speaker 2 (03:24):
Yeah, well, don't compare them side by side. It's good
to check them all and you can do it for free,
so you know, please do, but don't compare them side
by side and say, right, my experience score is this?
Why is my TransUnion score so low? Just view them
individually and see how you sit on the banding with
those credit reference agencies.
Speaker 1 (03:42):
Okay, And do any other organizations have credit scores for us?
I mean, for example, does my bank have a credit
score for me? Does my mortgage holder I have a
credit score for me? Are there other numbers around the
place that aren't with these three main unions?
Speaker 2 (03:58):
Yes? Well, just to make this, you know, even easier
for you, there are different numbers, but you will not
ever see those numbers. The only time the other number
is generated for you is when you apply for something.
So you'll apply, they will check the information on your
credit report plus your application form information, so really your affordability, salary, dependents,
(04:19):
other expenses and so on, and perhaps if you bank
with them already their own information and at that point
you apply, they'll generate a score for you. That's the
score that determines do you get accepted or not? What's
the interest rate going to be? What's the limit going
to be? But they don't tell you what that number is,
so you know, you'll know you were good enough if
you get accepted and get the good rates, you'll know
(04:41):
you are borderline if maybe the interest rate goes up
a bit at the end, or you don't quite get
the limit you want.
Speaker 1 (04:47):
Okay, all right, very useful, and I suppose the next
obvious question to ask is how are those scores built.
What goes into the building of the score. What are
the agencies looking at?
Speaker 2 (04:59):
The score is built on lender feedback, so they tell
us the credit reference agencies what's important, so you know
what's important in terms of your payment history if you've
made them on time, or in terms of the amount
of debt you have missed payments, court judgments. There's lots
of information that goes into calculating the score, but it's
(05:20):
based primarily on how we work with and experience hundreds
of lenders to figure out exactly what's important and how
we build that score.
Speaker 1 (05:29):
Okay, so your school will be good if you have
borrowed money always paid it back on time effectively.
Speaker 2 (05:34):
Yeah, A good track record of managing credit. So you've
had some sort of credit agreements in the past, you've
paid them on time, and possibly in an ideal world,
you have paid them off and closed them successfully. And
then that's kind of how you build your track record
of managing credit well, and that leads to generally a
good score. There are other things that obviously impact it,
(05:55):
so you know not just that, but how much current
debt you are in, for example, will have a big influence.
If you've got credit cards, how much you're borrowing on
those and how close you are to the limit and
so on. So your current debt levels have a big
impact on your score as well. But the history is
really important.
Speaker 1 (06:11):
Okay, I think there's an obvious question that comes out
of that. I want to ask the obvious question first
and then move on to asking you what makes your
credit rating bad. The first question is if you are teller,
for example, you asked us this question and you're in
your early twenties and you have never borrowed money before,
that means you don't have a credit score at all,
or it means you have a bad credit score.
Speaker 2 (06:30):
It's no, it doesn't necessarily mean you have a bad
credit score, So they're kind of what we call a
thin file, so where you just have very limited information,
which means the lender can make very little judgment about
how well you'll manage credit. So you know, we always
kind of talk then about the process of building your
(06:51):
credit history, and it's kind of step by step process
of getting some sort of information onto your credit report,
managing it well through those credits, and then building it
over time.
Speaker 3 (07:02):
There's anything you can do to boost the law, I mean,
it's something that obviously had about is make sure you're
in the electoral register or the voters roll and exactly.
You know, because as far as the first thing you
get crear that you don't like to be going for
a mortgage, I mean to having a mobile phone contract,
help all of these sorts of things.
Speaker 2 (07:21):
Yeah, it does, actually, and it's a good point because
in terms of building it, let's say, almost from scratch,
getting on the electoral role is probably the first thing
that I would suggest people do. So wherever they can,
of course, get registered on the electoral role. That's your
first bit. Your next bit is having a bank account.
It doesn't matter if it's got an overdraft, but as
long as you've got a bank account, it'll add some
(07:43):
information on there, but don't have any problems with it
if you can, so try not to go into unarranged
borrowing and so on that can cause an issue. And
then the next stage would kind of be thinking about
getting a credit card. And that's because if you use
that in the right way, and perhaps we'll talk about
that in a moment, is they're quite easy to get
and if you use them in the right way and
(08:03):
pay them off in full, you don't pay the interest
on it, and suddenly you've got a couple of accounts
plus electoral role, you're building up some positive information on
your credit reports. That's a great way to start that process.
Speaker 1 (08:15):
I think we had better go straight into what is
using a credit card the right way? I mean, I
think we would think using a credit card the right
way is buying stuff with it, you know, of not
being any interest. But you said that already. Is there
something else involved in the right way?
Speaker 2 (08:29):
Well, it's just to do with the balance and how
you use it on there. And of course this is
the right way for you know, me as a credit
reference agency, let's say, because what we want to see
and what a lender likes to see is a very
low balance but an active account. So the way to
do that is spending a few pounds every month on
(08:50):
something you would have bought anyway. So try not to
buy something that you wouldn't have wanted to buy normally.
That's how you kind of get into problems. But spend
it on something the food shop once a month, something
like that, pay it off in full every month, so
you don't pay the interest on it. And so if
you keep the balance slow, you keep it active, you
don't pay the interest. That's a great way to keep
(09:13):
your credit card running. Of course, there are people who
use credit cards to do their normal spend on that's
because they might get rewards points things like that on it,
and there's nothing wrong with that. But if you're spending
a large amount or getting very close to the limit
every month, then that can show on your credit report
and that could affect your credit score. So you probably
(09:34):
want to avoid that right before you apply for something important.
Speaker 3 (09:38):
That's interesting because this is another thing of read about,
this idea of not wanting to do too many things,
Like if you go to the personal finance websites, then
people often talk about who you apply for the new
buying account so you can get the sweach in bonuses
every six months or something like that. But then they
sort of say they don't do that. If you're about
to apply for either a mortgage or a personal loan,
(10:00):
the big condity, can you give us an idea of
what the kind of lee we as and that sort
of stuff? Is there any sort of gay is there's
a less less of a big deal and what's more
important to avoid?
Speaker 2 (10:09):
Yeah, so there's lots to that question. But the first
part is we generally say, because when you apply for credit,
it pops up on your credit report and it could
lower your credit score, and so we say keep those
two a minimum where you can. So probably a couple
every few months is a good idea. And so you know,
(10:30):
that's why we say probably a couple of months, two
three months before you apply for something bigger like the mortgage,
for example, you want to avoid applying for other types
of credit just so you don't have those applications pop on.
But the other part to your question is if you're
applying for something that you know has a value to it.
So let's say you're taking out a loan or potentially
(10:52):
even using buy now Pay later, or something that would
add a balance of debt to your credit report. You
again might want to avoid that before applying for something big,
just because of that will then impact into your affordability
how much you're currently borrowing those kinds of things.
Speaker 3 (11:08):
Yeah, one quick thing that you mentioned by an ope later,
what is this theatis of that at the moment? And
because I've not stayed fully abreast of this, and I
remember the sort of clown that stale stuff wasn't really
been clipt an eye And how's that change in or
what's going on with that?
Speaker 2 (11:26):
Yeah, that's an interesting question. But that there are by
now pay later lenders who are sharing with credit reference agencies,
now Klana being one of them. They share their information
with us, and some of the others do with the
other credit reference agencies as well. It doesn't factor into
the credit score we give you yet because the sharing
is so new, and there is regulation that is kind
(11:49):
of proposed and coming down the line, which may mean
that possibly next year twenty twenty six, they will be
regulated to share or by now pay later accounts with
credit reference agencies, So that might come down the line.
But it may be that if you use certain ones
they will share with a credit reference agency at the moment,
so you'll see those accounts pop onto your credit report.
Speaker 1 (12:09):
So let's talk about what makes your credit reading bad.
What are the things that actively make it bad? I mean,
I'm assuming things like coming account of good judgment against you,
a bankruptcy and iva, that kind of thing. But is
there anything else that will actively make it bad that
might not be immediately obvious to people like that.
Speaker 2 (12:27):
Yeah, of course, so these obviously are the things to
try and avoid where possible. We've talked about applying for credits,
so you know, lots of applications in a short space
of time, that's likely to drop your credit score if
you've got lots of new accounts as well, so we
calculate the average age of your accounts. So really what
we're saying is long running accounts are good. Loads of
(12:49):
new accounts can kind of impact your credit score quite significantly,
especially if they're under a year old. And then the
next part is payment history. It's a really big part
of your score, so missed payments, even one of them,
could impact your credit score by quite a lot. So
you know, really important to have the direct debits set up,
make sure things are paid on time, even the mobile
(13:11):
phone contract, you know, the smaller bills that you think, actually,
you know what, that's not going to have much of
an impact. It will still impact your credit report if
you miss it.
Speaker 1 (13:19):
Does that include your electricity bill and your water bill
and all that sort of thing.
Speaker 2 (13:23):
Yes, they are shared with credit reference agencies as well,
so you know, if you're missing those payments and also
incurring debt for missing those payments, yes, that will show
on the credit report as well. You talked about county
court judgments, so court judgments, anything to do with insolvency
like an IVA or bankruptcy will obviously have a significant
impact on your credit score. But the biggest thing that
(13:45):
actually does have an impact on your score is what
we call a defaulted account. So that's an account where
you haven't paid it in probably somewhere around three to
six months, and the lender has then closed the account
with an outstanding set as a default stays on your
report for six years from that point, and that has
a really big impact on getting credit. So, you know,
(14:07):
my biggest advice actually in that scenario is if you're
missing payments or you're going to miss payments and you're
in that place where you will go on the road
to potentially a default is speak to the lender straight away,
try and set some sort of payment arrangement up that
at least stops it going to a default. Or as
well as that, speak to a free debt advice provider,
(14:29):
your step change pay plan, someone like that who can
really help sort out you know, your kind of finances
and budget and so on, and find the right solution
for you.
Speaker 1 (14:37):
Let's say I'm playing for a mortgage and my credit
score with experience with all of them is not excellent
but very good. What's the difference in the interest rate
that I'm likely to get offered for a mortgage?
Speaker 2 (14:50):
That's a that's a very difficult question to answer, so well,
let's don't focus on that too much. And the reason
I say that is, like I explained earlier, what happens
is the lender doesn't see the score we give you.
They see the information on the credit report, but they
use that in conjunction with that your affordability information. So
you might have a huge deposit. I'm sure you've been
saving for a long time, so you've got that. Your
(15:12):
salary is great, your other expenses are minimal, and that
you know, together they calculate that and give you their
own score, and that might mean that you get, you know,
a very very good interest rate. If there is an
issue with affordability or with negative information on your credit report,
that's where you might start to see the interest rate
(15:33):
is getting a little bit higher when you apply. But
that's down to each individual lender, how they judge it,
how they you know, assess that score, and you know
what rate they give you. At the end, you're.
Speaker 1 (15:44):
Saying that there may be no difference between the interest
rate I'm offered if I'm very good or excellence. Are
so subjective, isn't it?
Speaker 2 (15:51):
It's well, I wouldn't say subjective because it's slightly so
I guess it's scientific in the sense that you know,
there's just it's a lot of data to look at
and judge, but each lender will be slightly different in
how they assess it. So I don't want people to
get hung up on the fact that they're twelve points
away from being in the excellent category, because that will
(16:13):
have very minimal impact on, you know, how the lender
judges the information. It's really about making sure your credit
reports in a good place and then obviously they factor
in the other information as well.
Speaker 1 (16:25):
Yeah, it's a bit late for that, John Binnis, because
we had target driven people and John and now the
second we finish here will be going online and we'll
be trying to find out what our score is at
each one if where it doesn't matter how far up
we are off Eklanent, We're both going for it and
it will be a competition. I'm going to be age
long before right now. Well, absolutely absolutely, he's already. I
don't know. We'll be finding out in the next ten minutes.
Speaker 3 (16:46):
And the all other thing I wanted to Johin was see,
if you do have buyed credit, how do you repeal that?
Like say, if i'd I don't know, a dodgy kind
of like yeah, you know in the twenties, but no,
you're a responsible adults. Should you start with?
Speaker 2 (17:01):
Well, look, the good news I'd start with is that
generally information on your report stays for six years, so
there's always light at the end of the tunnel. If
there's something negative, the thing I would say is key
is just keeping on tracks. So you might have some
negative stuff, it's about okay, can that negative stuff be
brought up to date? If you've been missing payments and
(17:21):
kind of turn that into a positive, keep that running well,
and depending on what it is, it might mean that
you focus on other accounts. So those basics that we
talked about earlier, you know, having the bank account, maybe
having the credit card, and just focusing on those and
keeping them running well, on time, paid, on time, balance
is low, and then at some point the other negative
(17:44):
information might drop off the report and it has less
of a negative impact on your score over time. So
it's kind of just focusing on doing good things while
you can and with what you can, and then it
will start to improve over time. The other thing I
would say, as well, as you know kind of when
we're talking about the negative bit well and the applying
for credit process is actually there are lots of services
(18:04):
available to search for credits or primarily credit cards, loans,
car finance, and in a way for mortgages as well.
But use comparison sites and eligibility services to check for
credits or we've got one. There are lots of them
out there, and the reason you use those is they
don't impact your credit score when you do the search.
(18:26):
It's a bit like searching for house insurance online. Their
soft searches don't impact your credit score, but they will
give you a very good idea of who will accept
you and what kind of deals you can get. And
you could even get pre approved as well, which is
always a delight to know before you actually apply, so
you know if anyone does, if anyone's looking for credit,
(18:46):
even if they're in a good place or they have
negative information, it's a great place to do your kind
of credit research. I know you said about ADMIN earlier.
It's more ADMIN, but it means that you know, you
get a really good idea of who you should approach,
rather than just applying to anyone who you've seen and
possibly getting refused.
Speaker 1 (19:02):
If I can look up my credit score this easily,
can other people look at my credit score?
Speaker 2 (19:08):
No?
Speaker 1 (19:08):
Why not?
Speaker 2 (19:09):
So when you say open an account with a credit
reference agency, we go through lots of checks to make
sure it's you that is setting up an account. To
check your credit report and score, we verify information across
public record information like electoral role account information to verify
that it's definitely you and if there's any issues with that.
(19:30):
We also go through further checks to check your ID
documents and possibly bills or statements as well to make
sure that we do not show anyone else your information.
Speaker 1 (19:41):
Okay, good, I'm sttle nervous about my electricity bill now
and everyone else looking it up, so I think we're
all good. John, thank you so much for being with
us today.
Speaker 2 (19:51):
We really appreciate it. Not glad to be here.
Speaker 3 (19:54):
Yes, thank you.
Speaker 1 (20:00):
Thanks for listening to this week's Marin Talks to Your Money.
If you like us show, rate, review, and subscribe wherever
you listen to. Podcasts also be showed following me and
John on x or Twitter at marinasw and John Underscore
step Bax. This episode was produced by Somemasadi, tala Amadi
and Moses and Production of Sport and sound designed by
Blake Maples. Questions and comments on this show and all
our shows are always welcome. Our show email is Merrimoney
(20:23):
at Bloomberg dot net
Host
Merryn Somerset Webb
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