Credit Scores Explained

Credit Scores Explained

author: Emily

By Emily


From films to restaurants, we’re regularly asked to offer our opinion on all sorts of products and services as a number.

But did you know you’re rated or scored too? And it’s all based on your money matters.

This is what a credit score or rating is. But what if you’re among more than half of Brits who’ve never checked theirs? It could cause issues when you apply for a loan or credit card in future.

To help you get a better understanding, here are credit scores explained and what yours could mean for you.

What is a credit score?                         

A credit score is a number that banks and lenders use to decide if they’ll let you borrow money from them. The higher this number is, the better your credit score will be.

But bear in mind there’s no such thing as a universal credit score. In fact, there are three main UK credit reference agencies in the UK and each one gives you a different score.

Your credit score isn’t a random number either. It’s based on your credit report, which is like a financial CV that covers the past six years of your borrowing. It contains lots of information about you – such as where you’ve lived and your current accounts, as well as any credit applications you’ve made.

Why does my credit score matter?

Looking to apply for a loan, take out a credit card or get a new phone on a Pay Monthly contract? Chances are, you’ll have to pass a credit check first. This is where your bank, lender or provider will look at your credit score to see what kind of borrower you are.

Your credit score is used to work out how much of a risk you are to the lender, using your past borrowing as ‘evidence’. If you’ve been a reliable borrower before, you’ll be less of a risk in the eyes of a lender. And they’ll be more likely to offer you better deals as a result.

If you’ve just turned 18 or haven’t needed credit before, you might be applying for the first time. This means your credit score will be pretty low. It doesn’t mean that lenders think you’re a risk – just that you can’t prove that you’ll be a reliable borrower.

But if your credit history is non-existent, how can you get credit? It sounds like a Catch-22 situation, doesn’t it? There’s no need to worry. With dedicated credit cards available for anyone with non-existent or less-than-ideal credit histories, you’ll be able to get the tools you need to build up your score.

What can affect my credit score?

A big influence on your credit score will be your payment history. Making regular repayments on time is good for your score, but missed or late repayments aren’t and will lower your score.

‘Credit utilisation’ is also a factor. This is how much of the credit available to you is being used. As a general rule of thumb, it’s a good idea to keep your regular credit card borrowing to around 25%-30% of your credit limit.

Other factors that affect your credit score include:

−     How many applications for credit you make

−     Being on the electoral roll

−     The length of your credit history

−     How much debt you’re currently in

−     Any defaults or County Court Judgements (CCJs) against your name

Where can I find my credit score?

Lenders use the three main UK credit reference agencies to find out more information about you – and the good news is you can see what they’re seeing, and it won’t cost you a penny:

−     Equifax

−     Experian*

−     TransUnion (formerly CallCredit)

* Your first 30 days with Experian are free, then it’s £7.95 a month. You can check your Equifax credit score free using ClearScore, however.

It’s a good idea to check your credit score before you apply for any credit. That way, you’ll get a better idea if you’ll be approved. It also lets you spot and correct any wrong information which might be on your report.

What is a good credit score?

This depends on the credit reference agency, which score you as follows:

Equifax: Max Score 700
0-278 (Very Poor), 279-366 (Poor), 367-419 (Fair), 420-466 (Good), 467+ (Excellent)

Experian: Max Score 999
0-560 (Very Poor), 561-720 (Poor), 721-880 (Fair), 881-960 (Good), 961+ (Excellent)

TransUnion: Max Score 710
0-550 (Very Poor), 551-565 (Poor), 566-603 (Fair), 604-627 (Good), 628+ (Excellent)

Disclaimer: All information and links are correct at the time of publishing.

author: Emily

By Emily

Credit Scores Explained Credit Scores Explained