A Simple Guide to Credit Scores

A credit score determines your creditworthiness. In the UK, it’s a 3-digit number which indicates how reliable you are at borrowing and repaying funds. It ranges between 0 to nearly 1,000. Generally, the higher your number, the better your score.

Several elements of a person’s life and financial background go into determining a credit score. But, a few factors tend to have a bigger impact. Arguably, your payment history will be the single biggest element that’ll affect your score. Lenders will want to know that you consistently cover your debts. Missed payments in your history will pull your credit score down.

Frequently setting up new accounts or applying for credit too often may also lower your score. Being close to your credit limit – the maximum amount of money you can owe on a credit card – may also hit your creditworthiness. All of this could make lenders fear you’re too reliant on credit to get by.

You’ll need to keep track of how much you can afford to borrow too. If you can’t pay off your debts, you may end up facing debt relief orders, individual voluntary arrangements, county court judgements and the like.

Having any of these on your record will not only cut your score, they could also make the basics unobtainable. Some banks may not even allow you to open an account with them, if you have these kinds of problems in your background.

On the other hand, having little to no credit history at all can also lower your score. Lenders typically want to see a track record of timely repayments and sensible financial decisions. If there is not a lot to assess from the outset, it will be tricky to gauge how creditworthy you are.

While there are a lot of things that can affect a credit score, certain elements of your past will have no baring at all. Your score is only tied in with people you’re financially linked to. Spouses being an obvious example. So, this means family and friends you’ve lived with, but have no financial ties to, will not affect your score.

What’s more, credit reports generally only go back 6 years or so. This means missed credit card payment you might have from 15 years ago wouldn’t usually affect it.

Who provides credit scores?

Credit scores are provided by 3 main credit reference agencies in the UK. These are Experian, Equifax, and TransUnion. They collate data on your financial history and assign you a score, which lenders then use to determine if you’re creditworthy.

Broadly, these agencies assess the same kinds of elements. Including payment histories and how often credit is applied for. You can get a credit report from these agencies, which are free and do not impact your score.

Experian’s credit scores range between 0 to 999. Any number up to 560 is very poor. If you fall within this range, lenders will likely refuse most credit cards, loans, and mortgages. An excellent score sits between 961 and 999. This kind of score should grant you access to the best deals, but you need to remember there are no guarantees.

Equifax recently upgraded its scoring system, taking its maximum number from 700 to 1,000. TransUnion’s scores go up to 710. Your score will likely be similar across these three agencies. There may be slight differences between them, but what you need to remember is that the higher your number, the better your score is.

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