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What is a credit score?
Updated: Tuesday, 2 January 2024
At various points in your life, you may want to borrow money or make a purchase on finance. It might be in the form of getting a mortgage, financing a car, paying for a new TV in instalments, or taking out a mobile phone contract.
Regardless of the reason, it’s your credit report, of which your credit score is part, that is a key factor that lenders look at to see whether they can approve your application.
But what is a credit score? How are they calculated? And what impact can they have on us and our ability to get credit?
In this guide, we’ll explain what a credit score is, how it is calculated, why it might change from one week to the next, and why your credit score might be different depending on what CRA you use to check it.
What are credit scores?
A credit score is a three-digit number used to summarise your financial history. It is a way for you to see at a glance how strong your credit file is.
Credit scores are generated by credit reference agencies (CRAs) using a wide range of personal and financial information.
Credit reference agencies are independent organisations responsible for holding, organising, and sharing details of your financial history. They use this information to build a credit report which a lender may view to assess your eligibility for finance.
As financial institutions, all CRAs in the UK are strictly regulated and licensed by the Financial Conduct Authority.
Why are credit scores important?
Whenever you submit applications to borrow money, lenders may use your credit score as a way to determine your creditworthiness (your eligibility for a loan or finance agreement). It is one of many factors that a lender may use to make sure that any finance offer is affordable and suitable for you.
Having a higher credit score shows lenders that you are responsible with credit. It might result in them offering you more favourable interest rates, higher credit limits, or greater flexibility with repayment terms.
Having a ‘fair’, ‘good’, or ‘excellent’ credit score might mean it’s cheaper and easier for you to borrow money than someone with a ‘bad’ or ‘poor’ credit score.
Now, whilst a good credit score can mean you find it simpler to take out a loan or purchase items on finance, there is no ‘magic number’ that guarantees lenders will approve any credit applications you make.
Some lenders specialise in providing finance to people with bad credit, so even if you have bad credit, perhaps because of missed payments or a CCJ or IVA, you may still be able to take out credit.
How are credit scores calculated?
Your credit scores are calculated using a points-based scoring system. The number of points you receive from a credit reference agency depends on the information provided by previous lenders and creditors.
To calculate your score, CRAs assess your current financial position and history to date, checking for things like whether you have a reliable track record of paying bills on time and in full.
Some of the factors they may consider include:
- Your payment history: lenders want to make sure you’re capable of managing finances and keeping up with the payments on any rolling contracts and other household bills. Any missed or late payments will remain on your payment history for up to six years and could impact your credit score
- Your credit utilisation: according to Experian, it is best to keep your credit utilisation (the percentage of credit you use compared to the total amount you have) below 30% to ensure it doesn’t affect your credit score
- The length of your credit history: your credit report and repayment history are evidence that you are capable of managing credit responsibly. If you have a long record of paying bills on time and keeping the same credit accounts, then this should act in your favour
- Newly opened credit accounts: if you have recently entered into a new finance agreement or taken out a loan, you may see a temporary drop in your credit score due to the hard search made and the new line of credit that will be recorded on your credit file
Whether or not you are employed or claim benefits doesn’t directly affect your credit report. However, lenders usually ask for some information about your employment history and your income when you make a finance application.
You can check your credit report and score for free on any of the credit reference agency websites.
What impacts your credit score?
A variety of factors can affect your credit score:
*Making lots of applications for credit in a short period of time can mean that there are lots of hard searches done on your credit file. This will typically cause your credit score to drop, according to Credit Karma. Some lenders offer a credit eligibility checker or use a soft search at the point of application. For more information, see our guide that explains the differences between hard and soft searches.
There are some things that you can do that may improve your credit score. Improving your credit score can prove to lenders that you are responsible with credit, and may increase your chances of getting finance.
Why do credit scores change?
Since credit scores are a snapshot in time, representing your borrowing history and current financial situation at a specific moment, they are subject to change.
Some of the main reasons why your credit score may change are:
- Time passing between when you check your credit report
Your credit score is based on your credit history. So, assuming that you are paying any bills on time, the more history you build up over the course of several months or years, the better your credit score may be. Moreover, credit scoring models also view account longevity favourably, meaning longstanding credit accounts with consistent repayment histories could improve your credit score. - Your credit utilisation may change
Credit utilisation is the percentage of credit you are currently using compared to the total amount that is available to you. As discussed earlier, it’s best to keep this below 30% if possible so that your credit score doesn’t get negatively affected. - You’ve taken out a new line of credit
If you have recently opened a new bank account, credit card, or have taken out some other kind of credit, you will likely see your credit score change.
Why do I have different credit scores?
In the UK, there is no standardised scoring system that lenders and reference agencies use to calculate a person’s creditworthiness. Instead, each of the three credit reference agencies (CRAs) have their own scoring model.
It’s also important to know that not all lenders report information to all three CRAs. Some lenders report information to two or one CRA. Because of this, your score might vary between them, so it could be useful to check your credit score with each so you can get the full picture.
The three main CRAs are:
- Experian: credit scores range from 0-999
- Equifax: credit scores range from 0-1000
- TransUnion: credit scores range from 0-710
Across all three CRAs, the higher your credit score, the more trustworthy you’re seen to be as a borrower.
As well as a numerical value, your credit scores will have a descriptive value, too. These descriptors break the full range of a credit rating system into smaller sections, grouping all credit scores within certain limits together.
The credit rating groups range from ‘very poor’ to ‘excellent’. Whilst your numerical credit score might differ slightly from agency to agency, you’ll likely fall within the same group regardless of the CRA you choose.
Can I apply for finance with a low credit score?
There is no minimum credit score needed for finance; even if you have a low credit score, you can still apply. It just means you may need to find a specialist lender that can provide finance for people with bad credit.
Representative 30.7% APR.
When applying for finance with a low credit score, it’s important to be realistic about your requests and to only make applications that you’re confident you can manage. Consider your budget and the repayment schedule of your application to ensure you’re able to keep on top of what you owe.
In fact, purchasing things like a car on finance can actually improving your credit report. By meeting monthly payment schedules, you can begin building a stronger repayment history that may stand you in good stead for being offered better interest rates on any future credit applications.
For more information, we’ve written a guide that explains how financing a car may build your credit score. It also depends on how you handle your other credit and any other changes that are recorded on your credit report.
FAQs about credit scores
Who is responsible for the information in my credit file?
Many people assume that the CRAs are responsible for all the information in their credit reports, but this isn’t actually the case. In reality, the responsibility is shared by a number of parties.
Lenders are responsible for passing on information about your financial history to the credit agencies in the first place; however, CRAs are also expected to carry out reasonable due diligence to ensure that the information they hold is as accurate as possible.
If you do spot any errors or mistakes on your credit report, contact the CRA and they should be able to issue a correction.
What is a good credit score?
Each credit reference agency has a different scoring model, so a ‘good’ credit score will vary depending on the CRA you check with.
- Experian: 881-960 is ‘good’ and 961-999 is ‘excellent’
- Equifax: 531-670 is ‘good’, 671-810 is ‘very good’, and 811-1000 is ‘excellent’
- TransUnion: 604-627 is ‘good’, 628-710 is ‘excellent’
We’ve written a guide that explains what constitutes a good credit score in more detail.
What to do if you are refused credit
A finance application can be refused for a variety of reasons. This can be due to a number of different reasons relating to your personal financial circumstances and the amount of money you requested to borrow.
If you feel that your credit application has been refused unfairly, you can ask the lender to take another look at your case. In some instances, it may be that the credit reference agency from which the lender has acquired information about your creditworthiness has been working on incorrect or out-of-date information. If this is the case, you will likely need to contact the lender that supplied the information to the CRA in the first place and request that they amend the error.
If you’ve been refused car finance and are wondering why, the most common reason is a poor credit score, so it’s worth checking your credit report with each of the CRAs.
Just because you’ve been refused doesn’t mean you can’t get car finance. It just means you might need to use a specialist lender that can help people get car finance with bad credit.
Representative 30.7% APR.
At various points in your life, you may want to borrow money or make a purchase on finance. It might be in the form of getting a mortgage, financing a car, paying for a new TV in instalments, or taking out a mobile phone contract.
Regardless of the reason, it’s your credit report, of which your credit score is part, that is a key factor that lenders look at to see whether they can approve your application.
But what is a credit score? How are they calculated? And what impact can they have on us and our ability to get credit?
In this guide, we’ll explain what a credit score is, how it is calculated, why it might change from one week to the next, and why your credit score might be different depending on what CRA you use to check it.
What are credit scores?
A credit score is a three-digit number used to summarise your financial history. It is a way for you to see at a glance how strong your credit file is.
Credit scores are generated by credit reference agencies (CRAs) using a wide range of personal and financial information.
Credit reference agencies are independent organisations responsible for holding, organising, and sharing details of your financial history. They use this information to build a credit report which a lender may view to assess your eligibility for finance.
As financial institutions, all CRAs in the UK are strictly regulated and licensed by the Financial Conduct Authority.
Why are credit scores important?
Whenever you submit applications to borrow money, lenders may use your credit score as a way to determine your creditworthiness (your eligibility for a loan or finance agreement). It is one of many factors that a lender may use to make sure that any finance offer is affordable and suitable for you.
Having a higher credit score shows lenders that you are responsible with credit. It might result in them offering you more favourable interest rates, higher credit limits, or greater flexibility with repayment terms.
Having a ‘fair’, ‘good’, or ‘excellent’ credit score might mean it’s cheaper and easier for you to borrow money than someone with a ‘bad’ or ‘poor’ credit score.
Now, whilst a good credit score can mean you find it simpler to take out a loan or purchase items on finance, there is no ‘magic number’ that guarantees lenders will approve any credit applications you make.
Some lenders specialise in providing finance to people with bad credit, so even if you have bad credit, perhaps because of missed payments or a CCJ or IVA, you may still be able to take out credit.
How are credit scores calculated?
Your credit scores are calculated using a points-based scoring system. The number of points you receive from a credit reference agency depends on the information provided by previous lenders and creditors.
To calculate your score, CRAs assess your current financial position and history to date, checking for things like whether you have a reliable track record of paying bills on time and in full.
Some of the factors they may consider include:
- Your payment history: lenders want to make sure you’re capable of managing finances and keeping up with the payments on any rolling contracts and other household bills. Any missed or late payments will remain on your payment history for up to six years and could impact your credit score
- Your credit utilisation: according to Experian, it is best to keep your credit utilisation (the percentage of credit you use compared to the total amount you have) below 30% to ensure it doesn’t affect your credit score
- The length of your credit history: your credit report and repayment history are evidence that you are capable of managing credit responsibly. If you have a long record of paying bills on time and keeping the same credit accounts, then this should act in your favour
- Newly opened credit accounts: if you have recently entered into a new finance agreement or taken out a loan, you may see a temporary drop in your credit score due to the hard search made and the new line of credit that will be recorded on your credit file
Whether or not you are employed or claim benefits doesn’t directly affect your credit report. However, lenders usually ask for some information about your employment history and your income when you make a finance application.
You can check your credit report and score for free on any of the credit reference agency websites.
What impacts your credit score?
A variety of factors can affect your credit score:
*Making lots of applications for credit in a short period of time can mean that there are lots of hard searches done on your credit file. This will typically cause your credit score to drop, according to Credit Karma. Some lenders offer a credit eligibility checker or use a soft search at the point of application. For more information, see our guide that explains the differences between hard and soft searches.
There are some things that you can do that may improve your credit score. Improving your credit score can prove to lenders that you are responsible with credit, and may increase your chances of getting finance.
Why do credit scores change?
Since credit scores are a snapshot in time, representing your borrowing history and current financial situation at a specific moment, they are subject to change.
Some of the main reasons why your credit score may change are:
- Time passing between when you check your credit report
Your credit score is based on your credit history. So, assuming that you are paying any bills on time, the more history you build up over the course of several months or years, the better your credit score may be. Moreover, credit scoring models also view account longevity favourably, meaning longstanding credit accounts with consistent repayment histories could improve your credit score. - Your credit utilisation may change
Credit utilisation is the percentage of credit you are currently using compared to the total amount that is available to you. As discussed earlier, it’s best to keep this below 30% if possible so that your credit score doesn’t get negatively affected. - You’ve taken out a new line of credit
If you have recently opened a new bank account, credit card, or have taken out some other kind of credit, you will likely see your credit score change.
Why do I have different credit scores?
In the UK, there is no standardised scoring system that lenders and reference agencies use to calculate a person’s creditworthiness. Instead, each of the three credit reference agencies (CRAs) have their own scoring model.
It’s also important to know that not all lenders report information to all three CRAs. Some lenders report information to two or one CRA. Because of this, your score might vary between them, so it could be useful to check your credit score with each so you can get the full picture.
The three main CRAs are:
- Experian: credit scores range from 0-999
- Equifax: credit scores range from 0-1000
- TransUnion: credit scores range from 0-710
Across all three CRAs, the higher your credit score, the more trustworthy you’re seen to be as a borrower.
As well as a numerical value, your credit scores will have a descriptive value, too. These descriptors break the full range of a credit rating system into smaller sections, grouping all credit scores within certain limits together.
The credit rating groups range from ‘very poor’ to ‘excellent’. Whilst your numerical credit score might differ slightly from agency to agency, you’ll likely fall within the same group regardless of the CRA you choose.
Can I apply for finance with a low credit score?
There is no minimum credit score needed for finance; even if you have a low credit score, you can still apply. It just means you may need to find a specialist lender that can provide finance for people with bad credit.
Representative 30.7% APR.
When applying for finance with a low credit score, it’s important to be realistic about your requests and to only make applications that you’re confident you can manage. Consider your budget and the repayment schedule of your application to ensure you’re able to keep on top of what you owe.
In fact, purchasing things like a car on finance can actually improving your credit report. By meeting monthly payment schedules, you can begin building a stronger repayment history that may stand you in good stead for being offered better interest rates on any future credit applications.
For more information, we’ve written a guide that explains how financing a car may build your credit score. It also depends on how you handle your other credit and any other changes that are recorded on your credit report.
FAQs about credit scores
Who is responsible for the information in my credit file?
Many people assume that the CRAs are responsible for all the information in their credit reports, but this isn’t actually the case. In reality, the responsibility is shared by a number of parties.
Lenders are responsible for passing on information about your financial history to the credit agencies in the first place; however, CRAs are also expected to carry out reasonable due diligence to ensure that the information they hold is as accurate as possible.
If you do spot any errors or mistakes on your credit report, contact the CRA and they should be able to issue a correction.
What is a good credit score?
Each credit reference agency has a different scoring model, so a ‘good’ credit score will vary depending on the CRA you check with.
- Experian: 881-960 is ‘good’ and 961-999 is ‘excellent’
- Equifax: 531-670 is ‘good’, 671-810 is ‘very good’, and 811-1000 is ‘excellent’
- TransUnion: 604-627 is ‘good’, 628-710 is ‘excellent’
We’ve written a guide that explains what constitutes a good credit score in more detail.
What to do if you are refused credit
A finance application can be refused for a variety of reasons. This can be due to a number of different reasons relating to your personal financial circumstances and the amount of money you requested to borrow.
If you feel that your credit application has been refused unfairly, you can ask the lender to take another look at your case. In some instances, it may be that the credit reference agency from which the lender has acquired information about your creditworthiness has been working on incorrect or out-of-date information. If this is the case, you will likely need to contact the lender that supplied the information to the CRA in the first place and request that they amend the error.
If you’ve been refused car finance and are wondering why, the most common reason is a poor credit score, so it’s worth checking your credit report with each of the CRAs.
Just because you’ve been refused doesn’t mean you can’t get car finance. It just means you might need to use a specialist lender that can help people get car finance with bad credit.
Representative 30.7% APR.
For a better road ahead
Moneybarn is a member of the Finance and Leasing Association, the official trade organisation of the motor finance industry. The FLA promotes best practice in the motor finance industry for lending and leasing to consumers and businesses.
Moneybarn is the trading style of Moneybarn No. 1 Limited, a company registered in England and Wales with company number 04496573, and Moneybarn Limited, a company registered in England and Wales with company number 02766324. The registered address for these companies is: Athena House, Bedford Road, Petersfield, Hampshire, GU32 3LJ.
Moneybarn’s VAT registration number is 180 5559 52.
Moneybarn Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702781)
Moneybarn No. 1 Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702780)
