What is a Credit Score?

A credit score is a number that represents your “creditworthiness,” i.e., the likelihood that you will pay back your debts. Lenders use this number to assess the risk of any potential applications. A low number indicates that you may have had trouble with paying bills in the past or that you have limited credit history available. A high number indicates that you’ve shown responsible bill paying and debt management over the years.

Prospective landlords, employers, mobile phone companies, banks, credit card companies, and other lenders will rely on a credit score when deciding whether or not to accept an application from you. (They may also use additional information you provide them, which is not on your credit score, such as your salary and employment status.) A low credit score is viewed as risky – the lender will be less confident they’ll be paid back and may decline your application. A high number is viewed as safe, and the lender will be more likely to grant credit.

Is My Credit Score Good?

In the UK there are three main credit reference agencies: Equifax, Experian, and Callcredit. They each have their own credit scoring system, which can be confusing as their ranking bands are not consistent. If you know your credit score, but aren’t sure if it is good or not, the following table outlines the credit score ranges for Equifax, Experian, and Callcredit.

Credit Score BandsEquifaxExperianCallcredit/NoddleDescription
Excellent467 and above961 to 9995Low risk; Should be accepted; Lower interest rates
Good420 to 466881 to 9604Low risk; Usually accepted to most credit products
Fair367 to 419721 to 8803Some risk; Credit limits may be low
Poor279 to 366561 to 7202Significant risk; May be rejected; higher interest rates
Very Poor0 to 2780 to 5601High risk; Higher probability you’ll be rejected; Higher interest rates when you are accepted;

Sometimes your credit score category (i.e., good, fair, etc.) may vary across the different credit reference agencies. Sometimes your creditors may not report to all three credit reference agencies. If this is the case, each credit agency will have different data on which to evaluate you. Additionally, there may be slight differences across the agencies because they each use their own, proprietary mathematical model to calculate your credit score, arriving at a different result despite using the same initial data.

How Your Credit Score Affects You

Your credit score will impact the financial products offered to you, in two ways:

  • Will you be approved for a credit card, loan, mortgage, insurance policy, etc.?
  • What interest rate will you receive on successful applications?

Those with an excellent credit score are more likely to be offered a lower interest rate when they are given credit from a lender. So, a higher credit score not only means your credit applications are more likely to be accepted; when you are granted credit, you will pay a lower interest rate, saving you money. Another benefit to a high credit score is that many of the most rewarding credit cards are only offered to applicants that meet a minimum credit quality. As many cards are aimed at those with excellent credit scores, a solid history provides you with a larger range of cards from which to choose, for instance the best cashback credit cards.

How is My Credit Score Calculated?

While Equifax, Experian, and Callcredit use slightly different mathematical models to determine your credit score, they generally rely on the same types of input information. Some of this data is publicly available and some comes from your creditors, as detailed in the following table:

Information Used to Determine your Credit Score

Public Information

  • Electoral Roll (i.e., are you registered to vote?)
  • County Court Judgments
  • Bankruptcies

Credit History Information

  • How Much You Owe to Lenders
  • Late Payments
  • Length of Credit History (longer = better)
  • Financial Associates (those who have a joint bank account or mortgage with)

Payment History

You payment history is probably the largest component of your credit score. How responsible you’ve been with payments in the past is viewed as a good indication of how you will pay back future debt obligations. It doesn’t matter why you’ve had a late payment. Whether you didn’t have the money at the time or it just innocently slipped your mind, a late payment will usually cause your credit score to go down. The later your payment is, the larger the downward adjustment to your score. Even a late payment on a small amount, mere pounds even, can impact your history.

How Much You Owe

Another big component of your credit score is your existing debt. That is, how much do you owe to lenders already? Your outstanding balances can have an impact on your ability to pay back your debts. The more debt you have taken on, the harder it may be for you to make payments on time each month. Clearly this may not be the case for everyone.

Therefore, the credit agencies don’t look at your outstanding debt in isolation. They seem to consider your debt burden along with your payment history, to get the best idea of your ability and willingness to pack back your debts. For instance, a financially stable and well-off person may have a large mortgage for which they have a spotless payment history. Additional credit, in this case, may be easily managed, and therefore a low credit risk for additional credit.

Credit utilization

Credit utilization is the amount you have actually borrowed compared to your credit limit. Generally speaking, the lower your credit utilization the better. By way of example consider a credit card with a £1,000 credit limit. If you owe £300 on this card, your credit utilization is 30% (£300/£1,000).

High credit utilization can be perceived as risky. If you have used up your credit limit on loans and credit cards (100% utilization) then you are maxed out in terms of what the lenders think you are capable of handling. A subsequent change in financial situation (e.g., you are made redundant) could really leave you in a pickle – without available credit when you really need it.

While you sometimes hear advice to cancel credit cards that you don’t use much, this may not be the best advice for the health of your credit score – but it all depends on your individual financial situation. Consider the situation in which you have two credit cards, each with a £1,000 credit limit. Say you have a balance of £500 on your favourite of the two, and you decide to cancel the other, since you don’t use it much. Cancelling the second card may have an adverse affect on your credit score. With the two cards, you had a credit utilization of 25% (£500/£2,000). Once the unused card is cancelled, you have half the credit available to you so your credit utilization jumps to 50% (£500/£1,000). Take this into consideration when deciding whether to keep or cancel an underused card.

Length of Credit History

A longer credit history provides a better picture of your financial behaviour to potential lenders and is why those without a credit card should think about applying for one. The sooner you start showing responsible payment of your debts, the more this component will positively affect your credit score. Also, if you do plan to cancel an account, it is generally better to close a newer account than an older account. Showing a long history with even one account can positively affect your score, so think about keeping an older account even if it is underused.

Credit Searches

Each formal credit application you make will show on your credit report for a year. Too many off these marks can reduce your credit score and scare off potential lenders, as too many credit applications in a short period of time may be a sign you are struggling financially and in desperate need of more credit.

Luckily, not all credit checks adversely affect your score. Only a “hard search” leaves behind a footprint for other creditors to see. A hard search provides full access to your complete credit report and will occur when you apply for a credit card, loan, or mortgage. Potential lenders need access to your full report in order to make an informed decision regarding your credit application.

To avoid leaving a mark on your credit record, some lenders will use a “soft search” to indicate whether or not you will be accepted. This soft search is performed before the formal application process and does not negatively impact your credit score. (You can see these “soft searches” when you check your own credit report, but other lenders cannot.) Some credit card companies offer to perform a soft search before you formally apply to a card. These soft searches are embedded in an “eligibility checker” on their site. Eligibility checks using a soft search will generally give an indication, not a guarantee, or your application success. Soft searches are less robust, giving a general picture of your financial health, and may also be used by a prospective employer, for instance.

How Long do Marks Stay on Your Credit History?

Just because you faced financial difficulties in the past, doesn’t necessarily mean you can’t be a responsible borrower now. So how long do marks stay on your credit record? The table below details the timelines under which various marks will slip off your credit history.

Credit agreements6 years from date the account was settled, written off or defaulted (whichever happened first)
County court judgments (CCJ) or decree6 years from date of judgment/decree
Bankruptcy6 years from original registration date, if the bankruptcy is no longer current
Individual voluntary arrangement (IVA)6 years from original registration date, if IVA no longer current
Gone Away Information Network (GAIN)6 years from original registration date
Administration order6 years from date of the order, even if paid in full.
Credit Application Searches1 year
Debt Collection Searches2 years

Quotation searches will be visible to you for one year, but do not leave a mark on your credit record, since they did not involve an application for credit.

Financial Associates

A financial associate is another individual with whom you are financially linked, perhaps through a joint bank account, mortgage, or loan. It is not uncommon for a current or ex-spouse or partner to be a financial associate. Problems can arise when a financial associate has a lot of debt, misses payments, or has a CCJ on their record. While your associate’s financial situation may not directly affect your credit score, lenders will see this information and it may affect your likelihood of being approved for credit. As long as your joint accounts are still open, you remain linked. Once any joint accounts are closed, you may request that the credit agencies place a notice of disassociation on your credit report. That way, you won’t be adversely affected by another’s credit problems in the future.

Confirmation of Who You Are

Being registered on the electoral roll can help your credit score, whether or not you intend to vote. In order to help prevent fraud and money laundering, the credit agencies need to confirm that you are who you claim to be, and that you live at the address on your application form. One way they validate this information quickly is by comparing it to information on the electoral roll. If your name is not currently on the electoral roll at your present address, you can contact your local authority and ask for a registration form. If you want to get started online, look here (https://www.gov.uk/get-on-electoral-register). To register you need to be 18 years old and a British, other Commonwealth, Irish or European citizen. Every year, usually in the autumn, local authorities contact the homes in their domain to update the electoral roll. If you’ve lived in your home more than a year, you are hopefully on the electoral roll already.

Information that is Not Used in Credit Scores

While it may seem that credit scoring uses an astonishing amount of personal data, there is some personal information that is NOT included in a credit score (although the lender may request data like salary and employer from the lender):

Information NOT Used to Determine your Credit Score

  • Race
  • Religion
  • Gender
  • Marital Status
  • Age
  • Salary
  • Employer
  • Occupation
  • Criminal Record
  • Where you live
  • Who lives with you (unless you are financially associated)