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. 

Watch our video to understand what a credit score is.
  • 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 is a credit score used for?

When you apply, lenders and service providers contact their preferred credit reference agencies to check your credit record, which will highlight any potential risk of offering you credit. This information could also influence any interest rates and the amount of credit offered.

This is a common step in any credit application, whether you’re applying for a mortgage, credit card, personal loan, overdraft or car finance.

What else do lenders check?

Details you provide

As part of a credit application you’ll be asked for some personal and financial information, which could include your address, employment status, income and regular expenses.

What you can afford

Lenders might review what you can reasonably afford to repay, based on your income, outgoings and anything you’ve already borrowed.

Your account history

Lenders usually keep records about accounts you’ve held with them in the past, including whether or not they were managed well.

How to check your credit score and report

It’s a good idea, especially if you’re planning to apply for credit, to check the details held by each credit reference agency. If you spot something that’s wrong, you could submit a data dispute to the relevant agency, so they can investigate and update their records.

The agencies used by Halifax include TransUnion, Experian and Equifax.

Check Your Credit Score with Halifax

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

Excellent

961 - 999

Very good

881 - 960

Good

721 - 880

Poor

561 - 720

Very poor

0 - 560

Equifax

Excellent

Very good

Good

Poor

Very poor

Excellent

811 - 1000

Very good

671 - 810

Good

531 - 670

Poor

439 - 530

Very poor

0 - 438

TransUnion

Excellent

Very good

Good

Poor

Very poor

Excellent

628 - 710

Very good

604 - 627

Good

566 - 603

Poor

551 - 565

Very poor

0 - 550

How is your credit score calculated?

Credit reference agencies collect information from a number of sources, including:

  • The electoral register – being on the electoral roll is one way that your identity and home address can be confirmed, which could help to improve your credit score.
  • Court records – Defaults, County Court Judgements (CCJs), Individual Voluntary Agreements (IVAs) and bankruptcy might affect your credit score for up to six years.
  • Lenders and service providers – details about accounts you hold, how well they’re managed, how much credit you have access to, and how much you’ve used, can all impact your credit score. This isn’t limited to credit accounts like mortgages, credit cards or loans, but could also include store cards, mobile phone contracts, TV subscriptions and other household bills.

More on what affects your credit score

 

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.

More on improving your credit score

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.

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