What is a credit score and how does it work?
Your credit score gives lenders an idea about how well you manage your finances.
What is a credit score?
There are three main credit reference agencies in the UK, each collecting information about you from public records, lenders and other service providers, before generating a ‘credit score’.
This number reflects how likely you are to repay anything you borrow, based on your track-record of using credit and managing your finances. The higher it is, the better your chances of being accepted when you apply for credit. Your score changes over time, just as your circumstances do.
It’s useful to know that you don’t have one credit score though. Each credit reference agency could hold different information about you, and has their own way of scoring.
Not only that, but lenders and other service providers do their own scoring when you apply for credit, looking at information from your credit record. They also consider other factors like affordability and any past account history.
Get a better understanding by watching a short video.
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Helping you understand credit scores.
When you apply for a credit card or loan, lenders consider a number of factors to decide whether they can lend to you responsibly. One of them is called a credit score.
If you also have a good payment history on all your accounts, have low outstanding debts, and are able to afford your repayments, a good credit score means you’re more likely to be seen as a lower credit risk. And usually, the higher your credit score the better.
A good credit score will mean: you’ll have a greater chance of being offered credit, possibly at lower interest rates, meaning cheaper borrowing, and you’ll be more likely to be offered higher credit limits.
Credit reference agencies hold information on people’s identity, address and personal financial history. These agencies get some of their information from public records, such as the electoral register, and from court records. They’ll also have info from other lenders, showing if you made repayments on time.
Many lenders offer eligibility checkers. Ours is called Simple Check. And it can help you find out which credit cards you might be able to apply for. Your answers to eligibility checker questions won’t affect your credit score, as they’re not given to credit reference agencies.
Let’s look at some ways you can help improve your credit score:
- Make sure you’re registered as a voter.
- Be sure to pay your bills on time.
- Clear your debts as soon as you can.
- Don’t regularly max out your credit card limit.
- And avoid applying for lots of credit cards or loans at the same time.
We hope you found this info helpful. Thanks for watching!
What does your credit score mean?
Each credit reference agency uses a different scale, but as a general rule, the higher your credit score is, the better your chances are of being accepted when you apply for credit.
It’s useful to know this could be different to what lenders and service providers see – they consider other factors, as well as information from your credit record – but it still gives you a quick idea about your financial position at any moment in time.
Below are examples from the credit reference agencies Halifax work with:
Experian
|
Excellent |
Very good |
Good |
Poor |
Very poor |
|---|---|---|---|---|
Excellent961 - 999 |
Very good881 - 960 |
Good721 - 880 |
Poor561 - 720 |
Very poor0 - 560 |
Equifax
|
Excellent |
Very good |
Good |
Poor |
Very poor |
|---|---|---|---|---|
Excellent811 - 1000 |
Very good671 - 810 |
Good531 - 670 |
Poor439 - 530 |
Very poor0 - 438 |
TransUnion
|
Excellent |
Very good |
Good |
Poor |
Very poor |
|---|---|---|---|---|
Excellent628 - 710 |
Very good604 - 627 |
Good566 - 603 |
Poor551 - 565 |
Very poor0 - 550 |
How to improve your credit score
There are a number of things you can do, which might improve your credit score over time:
- Always pay bills on time – including credit repayments, utility and other household bills.
- Manage accounts well – stay below any credit limits and try to reduce debit balances whenever possible.
- Apply with caution – whether or not you’re accepted, ‘hard’ credit searches could affect your credit score, especially if you make a number of full applications in a short period of time.
- Register to vote – it might boost your credit score if you’re on the electoral register.
A summary on credit scores
Credit scores are recorded by the credit reference agencies in the UK.
- When you apply for credit, lenders and service providers might check your credit record as part of their decision-making process.
- Depending on the type of borrowing, if you have a good credit score, it’s more likely you could be offered better interest rates and higher credit limits.
- A lower score could suggest you have limited experience of managing finances, or you’ve made some mistakes in the past, making you a higher risk for lenders.
- You might be able to improve your score over time, for example, by managing accounts well and limiting new credit applications.
- The information held by each credit reference agency can differ, so it might be a good idea to check your credit scores and reports with TransUnion, Experian and Equifax.