What’s the score?

You’ll have heard the term ‘credit score’ before. It gets thrown about when you apply for a phone with a new provider. Or with some gym memberships. In car dealerships, on store card applications. The point is, though, that it’s probably not something you’ve thought a lot about. Fair enough. It’s all bank chat, right?

Well, yes, but it’s bank chat that can make a fairly big difference to your financial life. Because a credit score (sometimes called ‘credit rating’) is how lenders make decisions. It’s a combination of the information you provide, what they already know about you, and your credit history — which is a different thing entirely. It’s a good idea to check your credit score before you apply for credit.

Here’s how it’s put together:

Your application form

Everything else is built on this. So, don’t guess. Be absolutely accurate. It’s really important to get this right.

Your relationship with the lender

If you’ve had an agreement with this lender before, they’ll look at how that went and where it is now. If you haven’t, they’ll rely even more on your application and credit history.

Your credit history

Before they agree to give you any money, lenders will ask an agency to run a credit check. In the UK that’s usually TransUnion (who used to be known as CallCredit), Equifax or Experian. They can take information from the electoral roll, court records, applications to other lenders, addresses you’re linked to and people you have a financial association with. That information paints a picture of your financial background and behaviour.

Your accounts and activities

Credit reference agencies can also see details about your accounts with credit/store card providers, banks, energy suppliers and mobile phone operators. They’ll also check out accounts with payday loan companies, and whether there’s any record of fraud against your name.

Sounds a little scary, but these are all perfectly normal parts of the credit application process. Once they’ve pulled together all the information they need, lenders will give you a credit score. Every lender has their own criteria, systems and preferences, so there’s no way to know what that might be. But if you understand how it works, you’ll be better equipped to take charge of your current and future credit life.

What your lender needs to know

Naturally, lenders want to know if you’re going to be able to pay them back. But they also want to know if you’ll be a good customer. Information about how you use and manage credit cards, for example, doesn’t just tell them how responsible you are. It also tells them whether you’re likely to be interested in their own credit offerings. So, they see what kind of products you’ve used or are using, and that counts towards the score they give you.

Keeping score

You can ask lenders for information about your credit history, but you won’t be able to calculate your credit score for yourself. Don’t worry, though, because you can always ask credit reference agencies (CRAs) to do it for you — and it’s usually free.

The three main CRAs in the UK are Experian, Equifax and TransUnion. They’ll pull together your credit and employment history, along with all the public records we’ve outlined so far. Each agency offers a different maximum score. Equifax is 700, TransUnion is 710 and Experian is 999. It’s a good idea to check your credit score before you apply for credit.

You don’t have to sign up to any paid agreements to see your credit report. Most agencies now offer it for free, and some even offer ‘free for life’ reporting. They might offer different information, though, so make sure you’ll get everything you need from them. If you want more detail, you might have to sign up for a free trial period. Remember to cancel before the payment date, unless you want to keep receiving the service regularly.

How to score more

Although lenders get most of their info from your borrowing history, they’ll look at your current behaviours too. They want to know how you’re likely to behave now, and they’ll only get a real picture of that if their information is up to date.

That means there are some things you can do to get a better credit score:

• Check your credit report. Make sure it’s right. If there are mistakes, sort them out as quickly as you can.
• Use one or two credit/store cards responsibly. Lenders want to see that kind of activity — it tells them a lot about you.
• Make sure your name is on utility accounts — gas, water, electricity, phone. They count towards your credit rating too. The more you’re on (as long as you’re managing them properly) the better your score could be.
• If you’re not already on the electoral roll, join it. It gives credit reference agencies an easy way to see who you are. If you’re hard to track down, they might think you’re not suitable for credit.
• Limit your applications. Applying for cards and loans too often suggests that you’re a risk.
• Always make repayments on time — missed payments will damage your credit score.
• Ask a CRA to do an eligibility check. It’s a less thorough search, but it gives you an idea of whether you’ll be accepted for credit — and it won’t harm your credit score.

What your score doesn’t say

Although CRAs can find out a lot about you from public records, they won’t include information about:

• Student loans started after 1998
• Council tax arrears
• Parking or driving fines
• Your marital status
• Reclaims for PPI, CPP or bank charges
• Credit file checks
• Race, religion or ethnicity
• Savings accounts
• Medical history
• Criminal record
• Child support agency payments

It’s important to answer truthfully if a lender asks you about any of those things in an application form. They can check your responses, so if you fib, they’ll find out!

Don’t put your score through the floor?

You might have the cleanest credit history ever – but there are still some things that could give you a lower credit score. So, look out for:

No financial history

You might think being totally debt-free is a positive — and in many ways it is! But if a lender can’t see how you’re likely to behave, they can’t prove you’re a responsible borrower. So even the squeakiest of squeaky clean records could have trouble getting credit. That’s particularly tough on people just arrived in the UK, or for people just starting their independent life.

Always on the move

If you move home too often, it could make lenders think you’re not a good bet. Even if your reasons are perfectly legit, moving around a lot makes lenders worry. Because how would they find you if you missed payments on their loan?

Someone else’s errors

We’re all human. So sometimes mistakes creep in. And even though most credit history searches are automated, they’ll show up human errors in reporting. Even tiny mistakes could have a big impact. They might make you look suspicious, or suggest you’re trying to hide something. Try to check your credit score once a year. That way you can fix errors before they become issues.

Too many accounts

Don’t open too many bank or building society accounts. It can make lenders think you borrow more than you can manage — especially if you have loans on more than one. Close accounts you don’t use. Think about consolidating debts into one place. Show lenders you can manage your debts and you’ll have a better credit score.

Been declined but your credit score is fine?

There are many factors that influence a loan application being accepted, other than your credit score itself. These can include:

• How much you have borrowed and how well you are managing existing or previous agreements.
• How often you apply for new credit.
• How much you’ve asked to borrow.
• How long you’ve asked to borrow for.
• Your monthly income and your existing outgoings.

These aren’t the only possible reasons, but they do help lenders assess how affordable the loan would be to ensure that they are continuing to lend funds responsibly.

Thinking of borrowing?

We’re always happy to help with a loan application. But we’re just as happy if you’d like to check your own credit report before you apply. Just visit TransUnion, Equifax or Experian and follow the easy onscreen instructions.

Before you go ahead with your application, take one more step — try our online loan calculator. It’ll show you examples of different interest rates and borrowing amounts available.