What is a credit score?

• What liabilities are
   
• What a credit score is
   
• How you can improve your own credit score

A liability is something that you owe. One aspect of all of this is your credit score - but what does that actually mean?

It’s free to check your credit score. Usually your credit score is determined by credit score rating agencies. For example in the US you are entitled to a free annual credit report from each of the three credit reporting agencies (Equifax, Experian and Transunion). 

Find out more on: usa.gov/credit-reports

Credit scores are calculated using information on your credit reports and each rating agency will uses a slightly different method. 

The results you get might vary depending on the scoring model, so 'good' will be a different score to one agency compared to another that uses a different grading scale. In most cases credit scores generally range from 300-850.

Generally scores are considered:

• Fair: 580-669
   
• Good: 670-739
   
• Very good: 740-799

Source: equifax.com

1. Pay all your bills on time: this includes credit card bills, even if you’re just paying the monthly minimum payments.
    
2. Pay more than the minimum wherever possible: this shows a level of reliability that generates trust.
    
3. Set up automatic payments: this can help you to safeguard your finances against forgetfulness, which happens to the best of us!
    
4. Don’t apply for unnecessary credit accounts: each credit application generates enquiries into your score which can affect it negatively - this is called a ‘hard enquiry’, and is an indicator of uncertainty for lenders.
    
5. Don’t close unused credit card accounts: so long as these accounts aren’t costing you anything, consider keeping them open - they tell a story about your good financial management.
    
6. Sign up to the electoral register: this is completely free, quick to do, and it helps credit agencies to confirm your identity easily.
    
7. Speak to your lender: this is especially important if you are having problems with repayments - a little communication goes a long way.
    
8. Give it time: a negative entry on your credit report will fade away with time, especially if you’re putting in the work to improve your credit. Make sure you’re not being too hard on yourself.