Your credit score is the same as your credit rating. In essence, it’s a numerical score or value between 0 and 1,000 (although the credit reference agencies’ scales vary). This score tells lenders how much of a risk they’re taking if they lend you money. It also determines what sorts of credit you can get and how much interest is applied to loans. Your credit score is also important for some jobs in the UK, especially jobs within the finance sector. If you’re worried about your credit score, you can get good advice on improving it here.
How is it formed?
Your credit score is collated by the credit reference agencies and this information is recorded on your record. Your record is all of your financial details – loans, mortgages, credit cards, credit enquiries and employment history, as well as other relevant information. If you pay debts on time and keep to credit agreements then your score will go up.
Why is your score useful?
Most UK lenders use credit scores to decide if they’ll lend money to someone. Banks also use them to decide if they’ll let someone open a new bank account with them. Your credit score is invaluable if you want to apply for any type of credit, from a personal loan to a mortgage. Lenders only like to extend credit to people they see as low-risk.
Finding your UK credit score
The UK has three main credit reference agencies – Experian, Equifax and Callcredit. These CRAs offer free reports when you sign up and you should also get one free report a year. If you want to see your report more often, or to get fraud protection, then you’ll need to pay a monthly fee. The CRAs might use different scales, Equifax uses 0-600 and Experian 0-1,000, but they all have the same “bands” of very poor, poor, fair, good and very good.
What’s a good rating?
A good rating will vary slightly, with Experian it’s 881-960 while with Equifax it’s 420-466, but the higher up the CRA’s scale you are, the more likely you are to pay back credit problem-free. A high rating means you’re low-risk. A poor rating might not preclude you from credit, but it may mean you pay more interest than someone with a good or very good rating.
How’s the score calculated?
The CRAs receive information from lenders, banks, credit card companies, mortgage providers and so on. These agencies send the CRAs information about who owes them money, how much, how reliably they pay it off, who has used up all their credit and who is in default. These are only some of the factors, however; the rest include:
- the number of bank and credit accounts someone has;
- the type of accounts;
- the person’s credit limit;
- the length of their credit history, and
- the person’s payment history.
Most weight – around 35% – is given to your payment history. Then around 30% goes to the amounts you owe, with around 15% going to the type of credit it is. Newer credit and the length of your history get around 11% and 6%.
Most credit scores in the UK range from fair to good, with a few people being at the very poor and very good ends. It’s possible to “repair” your score, but getting good advice and using online credit monitoring is the first step.