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Last updated on 25th of April 2022

What Is A Credit Score?

A credit score or a credit rating is a three-digit number that lenders use to assess how likely you are to repay a loan, credit card, mortgage, or other credit product. It’s like a snapshot of your financial history.
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A credit score or a credit rating is a three-digit number that lenders use to assess how likely you are to repay a loan, credit card, mortgage, or other credit product. It’s like a snapshot of your financial history. 

Credit scores also help indicate how likely you are to be accepted for financial products. It can be a key factor for lenders as it shows them  how you handled credit in the past. 

From applying for a mortgage to getting the best rates for your car insurance - your credit score indicates what interest rate you may get. The better your score, the better rate you will likely get. 

Understanding your credit score can help you improve your credit history and boost your chances of getting approved in the future with better interest rates as well. This is because, generally speaking, the lower your credit score, the less likely you are to be approved for a loan. 

Companies such as banks, insurers, and energy providers use your credit score to see if you qualify for products, including:

  • Mortgages

  • Current accounts

  • Loans

  • Credit cards

  • Car finance

  • Car insurance

  • Mobile phone contracts

Generally speaking, a higher credit score means you are more likely to be accepted because you’ve shown you can handle your credit commitments well and repay on time. 

Note: Keep in mind that your credit report does not include information about student loans, council tax, ISAs or savings accounts, criminal records, medical records, employment history, or driving fines.

How do you get a credit score?

Your credit score is calculated using data from your credit report. This can include your:

  • Credit history. Financial agreements like credit cards, loans, mortgages, and overdrafts. It also takes into account how you pay them, and records any missed payments. 

  • Credit applications. How many applications for credit you’ve made, including the ones you have been denied for.

  • Address history. Your current as well as any previous addresses. 

  • Financial ties. This includes anyone you have a joint credit agreement with, for example, a joint mortgage account. 

  • Public records. This shows any country court judgements (CCJs), insolvencies, bankruptcies, and electoral roll information. 

How to check your credit score

In the U.K, the main credit reference agencies are Experian, TransUnion, and Equifax. Some of them offer a free credit report and this includes your financial history such as:

  • Missed or defaulted payments

  • Electoral roll details

  • Credit agreements

You can also check your credit score for free using other platforms that draw data from these credit reference agencies. You can also subscribe to credit monitoring services that show you how much your score changes every month and give you tips on how to improve your credit score.  

Things that affect your credit score

Your credit score can always change and there are things that influence your score every month. This includes your payment history and your applications for new credit. 

Applying for credit

Every time you apply for credit like a loan or a mortgage, the lender will do a hard credit inquiry on your name. This gets recorded on your credit profile. 

Applying too often can hurt your credit score as it may show to lenders that you are desperate for credit. Try to limit the number of credit applications you make throughout the year and also use an eligibility checker before you formally apply for credit, to see what you may qualify for without a hard inquiry. 

Keep in mind that you may sometimes see soft credit searches on your profile, but these aren’t visible to lenders and won’t affect your credit score.

Late or missing payments

Late or missing payments can hurt your credit score. Whenever you skip a payment, it gets recorded on your credit report. So if you apply for new credit, lenders may see that you missed payments and may decline your application as you may be seen as a high risk. 

If you miss several payments, keep in mind that your account may be put in ‘default’ status, which has an even worse effect on your credit score. 

Credit usage

The amount of credit you utilise - your credit utilisation rate - can also affect your credit score. Using your entire credit limit can negatively affect your credit score as it may indicate to lenders that you are relying on credit and you may not be able to pay it back. 

It is recommended to keep your credit utilisation rate between 25% and 30%. Lenders are more likely to accept applications with a lower credit utilisation rate as it means you don’t rely on credit. 

Financial associations

If you have joint credit applications with other people it might have a negative effect on your credit profile. This is because if they miss payments or have a bad credit record, it may be linked to you and lenders may also check their profile when assessing your credit application. 

If your joint credit agreement comes to an end or your financial situation changes, you can remove the financial associate from your credit record. 

Public records

Other aspects may also impact your credit score, including whether you are registered on the electoral roll, and any county court judgements (CCJs) you have on your name. 

Judgements are essentially court orders issued against you to pay your debt. It can stay on your record for six years if you don’t pay it in full within 30 days after receiving the order. 

Keeping your data accurate

It is important to keep the data on your credit report accurate so that lenders can get the correct information when you apply for credit. 

You also want to avoid inconsistencies, like an outdated home address, as this can also negatively influence your chances of being approved for credit. 

Visit your credit report on a regular basis - preferably once a month - to make sure that the data is accurate and up to date. Especially if you are making regular payments on accounts as you want to ensure that there are no missed payments noted on your profile that are incorrect.

You can get your credit report free from some agencies or providers, or you can check your report directly from the main credit reporting agencies online. 

What to do if your credit report is inaccurate

All data on your credit report is subject to the Data Protection Act, which means that credit reporting agencies have an obligation to make sure that the information is up to date and accurate. 

If you notice that there is incorrect information on your credit profile, you can contact the credit reporting agency and request an update. You can also challenge any credit information on your report.

FAQs

What is an average U.K. credit score?

Every credit reference agency uses a different model for determining your credit score. So there isn’t one universal number that is considered a ‘good’ credit score. 

This is mainly because not all lenders report your data to every credit reference agency. Some report only to one or two credit reference agencies while others may share your information with all three.

For example, Experian scores from zero to 999 and Equifax scores from zero to 1,000. TransUnion scores from zero to 710. 

What is considered a good credit score?

This depends on the credit reference agency as each one has its own credit rating system. For example, a good credit score with Equifax is anything over 531, while TransUnion sees a good credit score as over 604. For Experian this is 881.

So don’t worry if your credit score looks different on each credit report. The main thing is to look at the classification of your score and to make sure your score falls in the range of ‘good’ or ‘excellent’.

What is the difference between a credit score and a credit rating?

Both credit scores and credit ratings are used by lenders to decide how creditworthy you are. Credit scores are numerical whereas ratings show where you are on a scale of good to bad. There is no universal credit score or rating and different agencies use different systems. 

Why are credit scores important?

Your credit score can determine whether you get approved for a loan or other credit product. If you have a poor credit score you may get a higher interest rate.