What is a credit score?

When it comes to applying for credit, you’ll probably see your ‘credit score’ mentioned, and you’ll have heard people say how this can affect what types of credit you’ll be eligible for. You might not have been sure what it all means, so we’re going to take you through what a credit score is and how lenders put these together. 

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“If you do get accepted by a lender, the credit score they generate for you will help them to determine the rate of interest they’ll offer you...”

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Definition

A credit score is something created by lenders to help them assess how much of a risk you are when you apply for a loan, credit card or other type of borrowing. They will use your credit report and their own eligibility criteria to decide if they’re willing to accept you for credit.

They will consider the information that you’ve put on your credit application (such as your salary) and any past information they have about you if you’re an existing customer of theirs. All of this, as well as your credit history, which they get from a credit reference agency, will help them to assess your situation and generate a credit score for you. This credit score will determine if a lender will let you borrow from them and if they will, how much credit they’ll give you – and the APR they are willing to lend at.

You might think that if you have a better credit score, you’ll be able to access better credit deals. But each lender has their own rating system, so just because you’re turned down by one lender doesn’t mean that you won’t be accepted by another. Being turned down doesn’t always mean that you have a problem with your credit history – for example they may set a minimum income that you need to be accepted. If you do get accepted by a lender, the credit score they generate for you will help them to determine the rate of interest they’ll offer you.

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Credit rating

Each of the credit reference agencies generate its own “credit rating” for you. They use your credit history and various other information they hold about you to calculate it. Each of the three does it in a different way and uses a different score out of a different total – which can be confusing. They don’t supply the credit rating they calculate to lenders, who just get to see your credit history.

“When you’re looking at your report, make sure you double-check the information that’s on there and make sure there’s nothing on there that shouldn’t be...”

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Check your credit history

You can access your credit history through any one of the three credit reference agencies: Equifax, Experian or Callcredit. With Experian and Equifax you can sign up for their credit report service. They both have a monthly fee, but you can sign up for a free trial – just remember to cancel before you get charged. Callcredit has a free service called Noddle that you can use to access your credit history. Alternatively, you can by law get your ‘statutory credit history’ from each or any of them for £2. 

When you’re looking at your report, make sure you double-check the information that’s on there and make sure there’s nothing on there that shouldn’t be. For example, if there’s a missed payment that you remember paying on time and you have evidence of this.

If you do notice any mistakes on your report, you can contact the relevant company and ask them to update or correct the information based on the evidence that you have. It’s important to remember though that information stays on your credit report for a long time. For example, a missed credit card payment, CCJs, insolvency solutions such as an IVA (Individual Voluntary Arrangement) or bankruptcy will remain on your credit report for up to six years.

It’s a good idea to check your report regularly to ensure everything’s as it should be – don’t worry if you’ve not got the time to do this every month, just once a year will do. However, if you’re thinking of making an application for credit like a mortgage or a loan, you may want to check your report more thoroughly so that any mistakes can be taken care of right away – and they won’t scupper your chances of getting accepted.

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Credit score vs. history vs. rating

Just to recap on the difference between the three:

  • Your credit history – is the facts that credit reference agencies hold about you. It consists of details of how you’ve managed all forms of credit you hold over the past six years. This is what lenders get to see when they credit check you.
  • Your credit report – the credit reference agencies calculate this – and each has its own system. It can be a useful way of understanding how good your credit history is (or isn’t!). The report is not shared with lenders.
  • Your credit score – lenders calculate this when you apply for credit. They use your credit history, and the other details you provide them on your application to do this. The score helps them decide whether or not to lend to you, and at what interest rate.

 

Personal loans

  • Easy to apply
  • Loans for almost any purpose
  • Quick decisions
Find out more

Homeowner loans

  • Borrow £10,000 to £250,000
  • We compare over 100 loans to find you the best deal
  • Getting a quote won't affect yout credit score
Find out more