Credit Score

Understanding your credit score

What is a credit score?

When you apply for credit, lenders will use a number of metrics to determine how likely you are to pay back the debt, and based on this decide if they will lend to you. Credit is any money that you borrow that you agree to pay back at a later date and could include not only loans, mortgages, overdrafts and credit cards but also hire purchase, catalogue and home shopping accounts, utility bills and mobile phone contracts.

Your credit score is one of the tools used by lenders to assess whether you qualify for credit. It is a 3 digit number based on your historical credit report as well as other information provided on your application such as your job and salary. People who have high credit scores tend to be seen as lower risk which means lenders are more likely to lend to them. People with lower credit scores may struggle to find lenders willing to loan them money or they may be able to borrow but at a higher interest rate. This is known as risk-based pricing.

How do credit searches work?

Different lenders will all have different policies for lending money, so although you may be turned down for credit by one lender, another lender who has different criteria may lend to you instead. Before making another application for credit it’s important to understand why you were turned down. You should also be aware that lots of credit searches in a short period of time can have a negative impact on your credit report.

How is your credit score calculated?

There are a number of factors that determine your credit score including but not limited to:

  • Your total debts and how much of your credit you’re using
  • Your credit repayment history
  • Credit searches on your account
  • Your current and previous addresses
  • Public records such as CCJs (county court judgements), bankruptcies or insolvencies
  • People you are associated with financially ie someone you took out a joint mortgage with

Information that does not appear on your credit report includes employment history, savings accounts, criminal records, parking fines (unless they go to court), council tax, medical records, ethnicity, religion or political affiliation.

Credit reference agencies

Your credit report will be complied by a credit reference agency such as Experian, Equifax or CallCredit. Information is sent to them by lenders to build your credit report and they supplement this with publicly accessible information such as the electoral roll and court records to calculate your credit score. Each agency has a different maximum score; Experian’s score is out of 999, Equifax’s is 700 and CallCredit’s is 710. This means that your credit score is going to vary between different agencies even if they are using the same information.

Your credit report is covered by the Data Protection Act which means there is an obligation by the credit reference agencies to keep the information contained on it accurate and up to date. If you find any information on your credit report which you think is inaccurate you have the right to dispute it. Lenders are only able to look at your credit report with your permission, although some organisations are able to access certain parts of your credit report in order to prevent fraud.

To find out more about credit and borrowing including tips on how to improve your credit score please visit our Financial Wellbeing Hub.