In focus: credit scores – what are they and how do you build a good one?

Life is full of inevitabilities, and one of them is having to wrap your head around credit scores. Here’s what you need to know
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At some point in our lives, most of us will have to get to grips with credit scores, from what they are used for to how you can build a good one. To help you understand, we’ve tackled some of the most commonly asked credit score questions.

What exactly is credit scoring?

Simply put, credit scoring is how would-be lenders – AKA banks and businesses that offer loans – assess the risk involved in potentially offering you credit. What do we mean when we say credit? Well, this could range from a mobile phone contract (yes, they count as credit agreements) through to loans, mortgages and of course credit cards.

So what is a credit score? Is it the same as a credit report?

Your credit score is a three-digit number that is calculated using all of the data that a credit reference agency holds on you.

A credit report, however, contains all of the information held on an individual about how they have historically managed and repaid debt. This includes how and when you pay your bills, how much debt you have, and how long you have been managing credit accounts. If you’re over 18 and have taken out a loan, credit card or mobile phone contract, it is likely that a credit reference agency holds a copy of your credit report.

What are credit scores and reports used for?

Lenders are required to lend responsibly, which means that before they do so, they have to assess if you are likely to repay the money that you borrow, if you can afford to borrow it, and the likelihood of you making timely payments. All of this is referred to as creditworthiness.

Do we each have one, universal credit score?

No. In the UK, there are three main credit reference agencies – TransUnion, Experian and Equifax. Each of them works with building societies, banks, mobile phone companies and other major retailers to help those businesses make a quick and informed decision about whether the person applying for credit is likely to pay it back.

Your scores are likely to be different with each agency, as they use their own systems with different maximum scores. For example, TransUnion’s score is out of 710, Experian’s out of 999 and Equifax’s out of 1000.

Is a high score good, or bad?

The higher the number, the better. If we take TransUnion’s scores as an example – 566-603 is fair, 604-627 is good and 628-710 is excellent.

What impacts my credit score?

Firstly, it’s important to note that your credit score is constantly changing. Here are the most common factors that can affect it:

  • Payment history. Even one missed payment can have a negative impact on your score.
  • The total amount of money that you owe and how much of your available credit you’re using. This shows how reliant you are on non-cash funds.
  • Credit history length, for example how long you've held your credit accounts. Generally, the longer your credit history, the higher your credit scores.
  • Credit mix. People with top credit scores often have a diverse range of credit accounts. These could include a car loan, credit card and/or a mortgage.
  • New credit. For example, the number of credit accounts you've recently opened. Too many accounts can indicate a higher risk and can hurt your credit score.

When would credit scoring be important for me?

Here’s a list of when companies may look at your credit score or report:

  • When you’re applying to open a new back account, or for a new credit card or loan.
  • When you’re applying for a mortgage.
  • When you’re looking to rent a property.
  • When you’re opening a new account with a utility or service company, or with a mobile phone provider.
  • When you’re applying for insurance.

How do I build a good credit score?

Here’s a handful of top tips for building a good credit score:

  • Make sure that, if you’re over 18, you’re on the electoral register. This is a really easy way to boost your credit score.
  • If you have existing credit agreements, be sure to make the minimum repayment every month – at the very least. This will help you build up a positive credit history over time. If necessary, consider setting up a direct debit to ensure you don’t miss a payment – remember, these can show on your credit report for years.
  • Close any credit accounts you no longer use. If the account is particularly old, you may see an initial decline in your credit score due to the age of the oldest account dropping. But this score factor will right itself when you continue to show positive repayment relationships with active accounts you still use.
  • Check your credit score regularly so you can see how your spending habits are influencing it and make adjustments where necessary.
  • Remember, while building a good credit score is important, your credit score can also drop for a positive reason, like when you successfully apply for a credit card. This is because when you apply for a credit card, the lender conducts a ‘hard check’ on your credit file. Whether you’re accepted or not, this hard check may result in a slight score drop.

How can I check my credit score – and does it cost anything?

There are a variety of free services that will give you access to your credit score. Some banks, including NatWest, allow you to check your credit score via their banking app. Alternatively, you can view your score directly with one of the three credit reference agencies: TransUnion, Experian and Equifax.


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