Wealth Checklist - Day 4 - What’s Your Credit Score?
Each evening this week will be a little task for you to complete to refresh your finances and feel a bit more put together. This is day four, find day one here, day two here and day three here.
That’s got to be worth a try!
Day Four - What’s Your Credit Score?
A Credit Score Isn’t A Set Thing
There’s no universal definition of a credit score - and no single, agreed way of calculating it. In fact, credit reference agencies - those who decide the credit scores - are private companies and they all have their own rules that they follow to make their decisions.
We don’t actually know those rules. We know the factors that they’re looking at - debt and repayment history, whether you’re on the electoral roll and connections to other people, for example. And they all use similar factors, but we don’t truly know the weight that each company might put on each factor. They have their own algorithms, developed over time, no doubt by very clever people.
(I don’t love this, by the way. One of my pet peeves is not having access to the rules on which I’m being judged but it is what it is…).
Each credit reference agency will have a different credit score for you and your score will change over time according to where you slot in their algorithm.
I tell you this because:
There’s No Use Panicking Over a Low Credit Score.
It’s just one private company’s overview of your ability to repay debt. It’s not a law - of nature or society - it changes over time and other companies might feel differently.
However, with that in mind, I do think it’s a useful metric if you’re in the wealth building stage.
What Are Credit Scores Used For?
Companies will look at your credit score, and other factors, to decide whether you’re a proper prospect to lend to - could be something big like a mortgage or much smaller like a phone contract or store card.
The reason I think it’s useful is because those factors which make up a good credit score - prompt and regular repayment of debt, aligning your finances with reliable people and good admin skills like getting on the electoral roll are indications of good and proper personal financial regulation. If you’re all over the place, living by the seat of your pants and stressed about where your next pound is coming from, well then your score is likely to be lower.
Not A Measure Of Your Worth
As always with any metric we discuss, this isn’t a measure of your worth. A high credit score means very little in the scheme of things but it’s because of that we can hold it lightly whilst using it to guide us a little.
It’s Quick and Easy
Experian, Equifax and Transunion are three biggies in the UK (but there are others) so if you don’t already know, have a little looksie!
Love Eleanor. xxx
P.s. If you enjoyed this and want to explore more about good, solid, personal finance - join up to the free newsletter - every week there’s a question, task and quest to help you align your finances with your values.
