‘What’s my credit score?’ That’s an important question we all must know the answer to. Where can you find that all important number, and what does it mean for you? All is decoded right here.
Your credit score is one of the most influential pieces of information used by banks and building societies, and other financial institutions when you want a loan, mortgage, or other credit. It could make or break a credit application.
I check my credit score every month – that way, should I need to borrow money for any reason, I know my credit score won’t be my downfall.
How important is your credit score? How do you check it? How do you rebuild it?
I will answer these questions and more, in this article.
30-Second Summary
Knowing, understanding, and managing your credit score is crucial to your financial health. Four key actions are:
Monitor your credit reports regularly, using services likeClearScore, Credit Karma, and Experian’s CreditExpert. This will help you spot potential issues early and improve your financial standing.
Understand what influences your credit score – factors that include your payment history, credit utilisation, and the diversity of your credit accounts.
Optimise your use of credit, keeping your credit utilisation ratio below 30%.
Use simple strategies to improve your credit score, such as registering on the electoral roll, keeping unused credit accounts open, ensuring you make all payments on time, and correcting any errors on your credit reports.
What Is A Credit Score?
Your credit score is a measure of your financial health. It provides a snapshot of how well you manage credit, and your creditworthiness, as a three-digit number.
The higher your credit score, the more favourably you’ll be viewed by a lender.
How Important Is Your Credit Score?
In the world of loans and mortgages and credit cards, a good credit score is crucial.
The higher your credit score, the less risky you become to a lender – a high credit score demonstrates financial reliability.
If your credit score is above average, you’re more likely to be accepted for a loan, be offered lower interest rates, and secure higher credit card limits.
You’ll have access to more financial products, too.
A poor credit score is likely to eliminate your credit application before the ink is dry.
The first step to building a high credit score is to know what it is today.
What Is A Good Credit Score?
There are three major credit rating agencies (CRAs) in the UK. They collect your financial information and rate you according to their own scoring system – which kind of clouds the horizon a little, because it means that there is no single number that indicates a good credit score.
Experian
The UK’s largest CRA is Experian. It scores in a range of 0 to 999:
- A score above 961 is regarded as ‘excellent’
- Score between 881 and 960, and you have a ‘good’ credit score
- Between 721 and 880, and your credit score is classed as ‘fair’
TransUnion
Next up is TransUnion, who score between 0 and 710:
- 628 to 710 is excellent
- 604 to 627 is good
- 566 to 603 is fair
Equifax
Equifax score between 0 and 1,000:
- A score above 811 is considered excellent
- Score below 438, and you’ll be categorised as having a poor credit score
How Can A Poor Credit Score Affect You?
I’ve mentioned how credit scores affect you if you need to borrow money – it’s the natural connection to make. However, there are many other ways that your credit score affects you in ‘real life’.
From renting a home to landing a new job, your credit score could be one detail assessed under the microscope.
Renting A Home
When you start looking for a place to rent, the first thing a lettings agent usually does is check your credit score.
If your score is low, it might hurt your chances of renting. The letting agent wants to know that you will be a good payer, just as much as they want to know that you will look after the property.
If you have a poor credit score, it could be because you have a poor history of making timely payments – and this makes you a riskier bet for a tenancy.
Insurances
It might surprise you to learn that insurance companies run credit checks too. You might wonder why, especially if you’re not borrowing money, right?
But here’s the thing: if you opt to pay your premiums in instalments, they see it as extending credit. A poor credit score (or no credit score) could translate to higher premiums or even a flat-out denial if the company is concerned that you won’t keep up with payments.
Mobile Phones
Do you want to buy a new smartphone on a payment plan, or with a monthly call and data plan? Again, your credit score comes into play.
A low score could lead to an answer of, ‘Don’t call us; we’ll call you.’
Car Loans
If you don’t keep up with your repayments on a car loan, the car could be repossessed. But this collateral isn’t enough for lenders. Even if they should repossess your car and sell it, the proceeds might not cover what you owe (especially if you haven’t looked after the car).
Therefore, from the outset, they want you to make monthly repayments on time, and repay the loan in full. If you have a low credit score, at best you can expect tougher terms and higher interest rates to compensate for the higher risk you pose.
Your Next Job
Some employers credit-check you before making a job offer – especially so if your career is in finance or law. They want to avoid risks that could damage their business and their reputation, so a solid credit history can make a significant difference.
What Affects Your Credit Score?
If knowing your credit score is the first step to improving it, the next step is to understand what affects your credit score. There’s a bunch of things that credit agencies inspect. The main five factors are:
Payment History
This accounts for around a third of your credit score. All accounts on which you make payments are included – mortgages, loans, credit cards, and so on.
Make one late payment or default on a credit agreement, and your score could get tanked.
Credit Utilisation
The amount of debt you have is important, but the crucial factor is your credit utilisation ratio. This is simply how much debt you currently possess vs the total available to you.
For example, if you have a credit card with a limit of £10,000 and a balance of £4,000, your credit utilisation is 40%. This factor can count for around a third of your total credit score.
Length Of Credit History
The longer your history of credit, the more information there is to demonstrate your payment reliability and spending habits. CRAs consider the age of your oldest active account, the age of your newest account, and the average age of all your accounts.
Type Of Credit & Credit Mix
Having a variety of credit types (such as credit cards, personal loans, store cards, and mortgages) could be positive for your credit score, because it shows you can manage diverse types of credit.
New Credit
If you open several credit accounts in a short space of time, this will tend to make you look higher-risk. Even applying for several credit accounts could dent your credit score, because each ‘hard’ credit check is recorded and seen as a red flag by lenders.
Other factors that could be considered when calculating your credit score include:
- A joint account with someone with a poor credit score
- A home address where the previous occupant had debt and a poor credit score
- Not being on the electoral role
- Withdrawing cash from your credit card regularly
- Errors on your credit file
I’ve Never Been In Debt – Why Have I Got A Poor Credit Score?
This is one of the most frequent questions about credit scores. If you’ve never been in debt, never had a loan, owned a credit card or store card in your wallet, it’s probable that you will have a terrible credit score.
It seems mad, but there is a logical reason behind this – if you have no credit history (except a mortgage), a CRA doesn’t have any data on which to rate you. Consequently, you could have been completely clear of debt your entire life, and have a credit score of zero!
How Can You Improve Your Credit Score?
Want to improve your credit score? Then do these six things:
Pay All Your Bills On Time
Set up direct debits to make sure you don’t miss a payment, including on your utility bills, council tax, credit cards, and other loan facilities.
Keep Your Credit Utilisation Below 30%
Pay down your card balances and avoid accumulating debt on your cards.
Open A Credit Card
Yep, to improve your credit score, one failsafe strategy is to open a credit card (if you don’t have one), start spending on it, keep within 30% credit utilisation, and pay off your balance each month.
Register On The Electoral Roll
This verifies your identity and address, and demonstrates that you are less likely to move.
Keep Unused Credit Cards Open
This will help your credit utilisation ratio to remain low, as well as lengthen your credit history.
Check Your Credit Score Regularly
Look for errors on your credit records such as incorrect balances, outdated information, or accounts that aren’t yours. If you spot errors, dispute them immediately with the credit bureau.
How To Check Your Credit Score
The simplest way to check your credit score is to sign up to services that do all the heavy lifting for you. The one I use most is ClearScore – which provides your Equifax credit score.
Other services are Credit Karma (for your TransUnion report) and Experian’s CreditExpert.
ClearScore
A free service that provides Equifax credit scores. It updates your score weekly, and delivers this information broken down by factor as well as in a useful timeline chart.
You can see at a glance how your credit score has changed over time as well as how you compare to your area and national average, and you’ll receive tips on how to improve your score.
ClearScore also includes an eligibility checker – great for checking if you are likely to be accepted for a credit account before making an application and having a hard credit check on your record.
You could also sign up for Equifax’s Credit Report at £14.95 per month, with a 30-day free trail. (This is like CreditExpert’s paid-for account as detailed below.)
Credit Karma
To see your TransUnion credit report you can use the free Credit Karma service. Like ClearScore, your credit report is updated weekly and it, too, includes an eligibility checker.
You’ll receive personalised tips to help you build your score. With charts to track your progress, overall functionality is like that provided by ClearScore.
CreditExpert – Experian
To access your Experian credit report, you’ll need to sign up for a CreditExpert account. There’s a free option that gives basic details.
For a more comprehensive view of your Experian credit score, you’ll need to sign up for a paid account. This costs £14.99 per month, though there is a 30-day free trial period.
You’ll get access to your credit report, which is updated daily, plus charts and graphs, and alerts when changes to your credit report are made.
(Tip: Watch out for sign-up cashback on sites like Topcashback – one of the best cashback sites in the UK.)
Check All Your Credit Scores Simultaneously
If you want to check all your credit scores at the same time, the easiest way to do so is by signing up to CheckMyFile.
This costs £14.99 per month (again, there is a 30-day trial period) and allows you to compare credit reports easily, while also offering personalisation options.
Check Your Credit Score Today To Avoid Credit Problems Tomorrow
Understanding and managing your credit score is critical to your financial health. It’s like having a monthly blood test – helping you to detect and cure issues before they cause problems to you.
By checking your credit score regularly, you’ll be able to manage the key factors that affect your credit report, including payment history, credit utilisation, and your credit mix.
Services like ClearScore, Credit Karma, and Experian’s CreditExpert simplify the job of managing your credit score, as well as providing useful insights and tips.