What is a credit score?


What is a credit score?

Have you signed up to a credit reference agency and received your very own unique credit score?

You might be under the impression that this score is the be-all and end-all for when you apply for credit.  

Well, if you’ve been given a ‘poor score' we may be the bearer of good news. We’re here to tell you that in actual fact there is no such thing as a universal credit score.  

When you apply for credit – so a mortgage, loan or credit card for example – it’s your credit history that lenders look at.

By this we mean lenders will look at how well you’ve managed your borrowing over the last six years or so. It’s this activity that will form their decision of whether to lend to you or not, along with other factors like your income.

So, if you’ve made regular repayments and not missed or been late with any in the past, lenders are more likely to conclude that you’re a responsible borrower.

So, what do lenders look at?

As we’ve mentioned, when deciding whether to approve your application lenders assess how likely you are to pay back what you borrow from them. And they do this by looking at how well you’ve managed to keep up with your repayments in the past.

Lenders will use one or more of the three credit reference agencies - Experian, Equifax and Callcredit – to access your credit history. It will depend on the lender which credit reference service they use.

What do you mean by credit history?

Your credit history is simply a record of all the credit you’ve borrowed over the last six years or so. Lenders access it to view your previous borrowing habits.

Lenders have their own unique scoring systems out of which they mark applicants. Your credit history is one of the factors used to calculate whether you’re likely to be a responsible borrower.

So, if you’ve missed payments in the past, lenders may be hesitant to lend to you because they’re worried you won’t keep up with the repayments.

Are other factors taken into account?

Of course, a lender’s decision isn’t based solely on how well you’ve managed credit in the past. Other factors are also taken into account.   

Whether or not you’ll be accepted will be influenced by the likes of your income and your other financial commitments. The type of product you’ve applied for and how much you’ve asked to borrow will also be taken into account.

Should I take notice of my score?  

So if a ‘universal credit score’ doesn’t exist, why check it regularly? 

Any negatives, such as missed or late payments, will show up on your report. Checking your credit history regularly can ensure that errors don’t go unnoticed and you can act to resolve them before you apply for credit.  

It also lets you monitor the activity on all your accounts, which can help you dodge the risk of being a victim of financial fraud.

Signing up to a free credit checking service - like Noddle, ClearScore or CreditMatcher - is a great way to keep your credit history on track.

You’ll see that each agency has its own scoring system and they’re all different, which is why there’s no such thing as a universal credit score. It’s still useful to check your credit history regularly, though.

If you’re thinking of applying for credit – so a loan, credit card or mortgage etc. - it’s a good idea to always check your credit history first. This way you can gather an idea of what lenders see and gauge how likely it is you’ll be accepted.

A rejected application shows up on your credit history. If you think you’re likely to be turned down it might be better to wait a while and take steps to improve your credit history.

Can my credit history tick all the right boxes?

There are various things you can do to make sure you have a flawless credit history. We’ve written a guide on what to look out for when checking your credit history and ways to improve it on our blog.

So there you go - a few points to bear in mind when checking your credit history.