Understanding and Improving Your Credit Score with a Family

Credit scores are a reflection of your personal financial history, and it can be easy to think that they concern you and you alone. When you have a family, however, in whatever form that may be, your credit score is no longer just about you. There are several ways in which having a family can impact your credit score, and in which your credit score could be affecting them too. 

In this article, we’ll go through the basics of understanding your own credit score and ways in which you can improve it; how your partner’s credit score can impact yours and vice versa, and share handy tips for setting your children up to have a great credit score early on.

What is a Credit Score?

A credit score is a three-digit number that is calculated by the three main credit rating agencies (Experian, Equifax and TransUnion) to reflect your creditworthiness. This simply means your suitability to take on financial credit in the form of loans, credit cards, mortgages and so on. It’s based on your credit history – any instance in which you’ve used financial credit products in the past. 

Simply put, almost any agreement that you’ve had with a company in which you make regular payments to them, from mobile phone contracts and property rental to car loans, may be included in your credit file. Making the agreed payments on time will reflect positively whereas missed payments will have a negative impact. It’s used to give lenders a snapshot of your financial behaviours, with the view that someone who has a history of missing payments is likely to do so again. 

Unless you make the same transactions in the exact same ways every month without fail, it’s highly likely that your credit score will change over time. Your credit score can go up and down – although many find that it can fall easily, and be much more difficult to rebuild over time.

Why Does Your Credit Score Matter?

Your credit score directly impacts how likely you are to be approved for credit, as well as the interest rates you will be offered if accepted. Those with higher credit scores are seen as less risky borrowers due to their history of keeping up with repayments. Many lenders will be willing to offer credit to those with good credit scores, and you’ll be eligible for the most competitive interest rates across the board regardless of the loan type you are applying for. 

On the other hand, having a poor credit score makes it much more difficult to be approved for credit. However, that’s not to say that you will find it impossible. Some lenders specialize in offering bad credit loans which are based on your ‘affordability’, calculated by looking at your income and outgoings, more so than your credit score. Lenders will often require those with low credit scores to pay higher interest rates – this incentivises them to offer credit when there is a higher risk of it not being repaid as agreed.

How are Credit Scores Calculated?

There is no one set way in which credit scores are calculated across the board. Each of the three main credit rating agencies has different methods and even different maximum possible scores. What’s more, the three-digit score you see when you view your file with Experian, Equifax or TransUnion is only visible to you. 

Lenders are not shown this score; they use the rest of the information in your file to calculate your credit score using their own criteria. However, this doesn’t mean that your credit score is redundant – the same factors that build a good credit score with the main credit rating agencies are likely to be viewed in a similar light by potential lenders.

How to Check Your Credit Score

The first step to getting control of your credit score is to check it regularly. Ideally, you should check your credit report with Experian, Equifax and TransUnion every month. You’ll need to investigate your report in-depth the first one or two times you do so, but after this, it will just be a quick glance to see if anything has changed.

It’s easy to check your credit report online. There are some ways to view your report which charge you a fee, but all credit rating agencies have a statutory obligation to give you access to your credit report for free.

  • View your Equifax credit report for free here
  • View your Experian credit report for free here
  • View your TransUnion credit report for free here

If there is any incorrect information on your credit file, you should contact the credit rating agency directly to ask them to remove or change it. You may need to provide evidence if this is a major change. It’s best to go through every detail scrupulously. Because you don’t know what factors agencies and lenders are using to calculate your score, it’s best to leave nothing to chance.

What Counts as a Good Credit Score?

All three credit rating agencies have different score ranges so there is no one universal good score. However, all agencies’ score ranges are broken down into the same categories. These are very poor, poor, fair, good and excellent.

What is a very poor credit score?

  • Experian: 0-560
  • Equifax: 0-279
  • TransUnion: 0-550

What is a poor credit score?

  • Experian: 561-720
  • Equifax: 280-379
  • TransUnion: 551-565

What is a fair credit score?

  • Experian: 721-880
  • Equifax: 380-419
  • TransUnion: 566-603

What is a good credit score?

  • Experian: 881-960
  • Equifax: 420-465
  • TransUnion: 604-627

What is an excellent credit score?

  • Experian: 961-999
  • Equifax: 466-700
  • TransUnion: 628-710

While monitoring your credit score is important so you can notice any fluctuations, it’s also imperative to keep track of what category you fall into. This should generally be the same across the board. It’s unlikely that you would have a poor credit score in the eyes of one credit rating agency and a good one with another; this would indicate a mistake on at least one of the files. 

Does Your Partner’s Credit Score Affect You?

There is a misconception that simply living with someone, whether co-habiting, married, in a civil partnership or any other arrangement, will financially link you. This isn’t necessarily the case. What does financially link you to someone is having a joint financial product. An obvious example would be a mortgage, but this could also be a shared bank account that you use for bills. Having, for example, utility bills that are in both of your names don’t always link you, but it can do in some cases. You can check whether you are financially linked to someone by looking on your credit report.

The reason that this is important is that if your partner has a lower credit score than you have, or vice versa, the lower score can actually bring down the better one. Unfortunately, it doesn’t work in the same way the other way around. If you are having difficulty being approved for credit at a good rate, even though you have a good credit score, this could be worth investigating. It might be prudent to look into whether it is possible to financially disassociate yourself with your partner until they are able to bring their credit score back up.

What is Meant by a Thin Credit File?

Having a thin credit file means that there isn’t much information in your credit report. This can be because you are relatively young and new to the credit world and simply haven’t had a chance to build up a credit history yet. However, it’s possible to have a thin credit even if you have been eligible for one for many years but simply haven’t used much credit. Of course, this may be the case because you are extremely careful with your finances and simply don’t purchase anything that you can’t afford upfront. 

However, a thin credit report can be just as damaging as a poor to fair score in terms of affecting your eligibility for credit. This is because lenders don’t get to see the reasons behind your lack of credit history and therefore have no proof that you can manage credit responsibly.  They’re unlikely to take the risk of lending with insufficient information to assess your creditworthiness. However, there are a numerous line of credit such as guarantor loans with bad credit that can provide financial aid to those that need it. It can take a while to build up a thin credit file – usually at least six months. Therefore, it’s a good idea to start adding some new entries to your credit file if you’re planning on applying for credit at any point in the future.

How to Get a Good Credit Score

Improving your credit score, whether that’s from having a thin credit file or a poor rating, takes time and diligence. It can be difficult and frustrating because the best way to improve your credit score is to show good credit behaviours over long periods of time, whereas a single missed payment can drop your score by around 20 points. However, there are several steps that you can take to improve your credit score which will help you see a mixture of immediate increases as well as long-term, continuous improvements.

  • Register to vote. This step is incredibly easy and takes just a couple of minutes on the government’s website. It helps because credit rating agencies and lenders will check the electoral roll when confirming your identity and address.
  • Keep your credit utilisation low. If you have a credit card, it’s a good idea to limit yourself to using no more than 25% of the available balance. Low credit utilisation is viewed positively by lenders as it shows restraint.
  • Don’t move home a lot. Lenders look for stability as a sign of a low-risk borrower. Having one address that you’ve lived at for a long time may make lenders more comfortable offering you credit.
  • Pay your bills on time. Missing a payment for your phone, internet or utilities can cause your credit score to drop. Set up a direct debit for any regular payments to make sure they aren’t forgotten. 
  • Clear your debts. If you have a savings account with a great rate, it might seem more sensible to prioritise this over clearing debts that have a low-interest rate. However, savings don’t show up on your credit report, so this would be viewed negatively.
  • Close unused credit accounts. If you have a lot of credit accounts in the form of store cards and credit cards that you don’t use, clear any remaining debts and close the account – don’t just cut up the card. However, keep the longest-standing account open, your average account length indicates stability.
  • Report your rent payments. You can request that a landlord reports your on-time rent payments to a credit rating agency. This will go towards building a good credit score as mortgage payments would.

Some credit reference agencies have mobile apps that allow you to regularly check your credit score and offer useful insights into what’s affecting your credit score and steps you can take to improve it.

Start Building Your Child’s Credit Score Early

Credit rating agencies do not start building a report on anyone before they turn 18. However, that doesn’t mean you shouldn’t be preparing your child to have a good credit score before this. As the score is based on financial behaviours, it’s imperative to teach your children how to be financially responsible from as early on. Making sure that they’re fully aware of the implications of poor credit choices before they’re eligible to apply lowers the chances of them getting a poor score early on. 

Once they are old enough to have a credit report, make sure they start building a good credit score right away. There is a range of credit products specifically designed for young adults to build their credit score, such as secured credit cards. These work similarly to regular credit cards but require a deposit to use. The deposit will usually be around the same as the credit limit. However, they’re great for building a credit score while developing good financial behaviours.

Understanding your own credit score as well as your partner’s and the impact they have on your family can be a massive help to getting your family’s finances in order. Demonstrating positive financial behaviours to your children is imperative for setting them up for adult life. 

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