What is a credit score and how can I improve it?

The numbers that matter when applying for credit

Experian – Consumer Credit Reference Agency

by Experian | Consumer Credit Reference Agency

Helping you stay in control of your finances and protecting your identity

Not keen on number crunching? You’re not alone, but there’s a set of digits none of us should ignore – and that’s our credit score. 

What is a credit score?

A credit score is a number that reflects the likelihood of you paying credit back. It influences your chances of getting:

  • Credit cards, loans and mortgages
  • Mobile phone contracts
  • Car finance
  • Gas and electricity monthly payments
  • Insurance monthly payments
  • Property rentals

When you apply for credit, lenders will look at your credit report (we’ve all got one of these too), application form, plus any information they already hold on you (if you’re an existing or previous customer). They use all this data to calculate your credit score. Each company has a different way of calculating it, depending on what information they have access to and their lending criteria.

The general rule is, the higher your credit score, the better your chances of being accepted for credit, at the best rates. A higher credit score means companies see you as lower risk. This is because a high score indicates you have a good track record of managing your finances sensibly and making repayments on time.

Want an idea of how companies may view you?

Credit reference agencies (also known as CRAs) like Experian for example, also calculate their own versions of your credit score. You can sign up to any of the CRAs to see their version of your credit score for free, and checking it won’t affect it. 

CRAs calculate your credit score based on information like how often you apply for credit, how much you owe, and whether you make payments on time. You’ll lose points for having late payments and defaults on your report. You’ll gain points for regularly making payments on time and being on the electoral roll. 

Checking your score with a CRA will only give you an indication of how likely you are to be accepted for credit. You will need to meet the company’s criteria to have your application approved. And, companies’ criteria vary from deal to deal, so they may look for different kinds of customers depending on the deal in question – this means you may get refused for credit even though you have a good credit score.

How to maintain a healthy credit score

Here are our top tips to maintaining a healthy credit score:

  • Try to limit how many credit applications you make in a short space of time. Every time you apply for credit a hard search is recorded on your credit report. Companies can see this and may interpret a high number of applications as a sign you’re overly reliant on credit. If possible, aim to make no more than one every three months.
  • Ensure your credit information is up-to-date and accurate by checking your credit report regularly – you can gain access to your credit report through a CRA.
  • Make sure you’re on the electoral roll by registering to vote. This helps companies confirm your identity.
  • Build up your credit history by paying off your existing credit on time and in full to show companies you’re a responsible borrower. 
  • Keep your credit utilisation low. This is the percentage you use of your credit limit. For example, if you have a limit of £1,000 and you’ve used £500 of that, your credit utilisation is 50%. A lower percentage is usually seen as a positive, and should increase your score. 
  • Be realistic and only borrow what you can afford. Debt issues like County Court Judgments (CCJs), Individual Voluntary Agreements (IVAs) and bankruptcy will stay on your report for up to six years and are extremely harmful to your credit score health.
  • Look out for fraudsters. Check your credit report for any signs of fraudulent activity to help protect your score.

Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.