Credit Score: The Ultimate Guide

Your credit score explained.

Last updated 18/04/2018

credit score ultimate guide

Whether you’re applying for a loan, mortgage, credit card or any other item of credit for that matter, the chances are you’ll be the subject of a credit score check. The purpose of the credit check is primarily to establish an applicant’s credit-worthiness based on their credit file. Essentially, a lender will use the credit check to evaluate the risk of lending money to each applicant.

What is a Credit Score?

A credit score is a number that represents your ability to access, and pay back lines of credit (including loans, mortgages, store cards and credit cards). Depending on which of the “Big 3” is generating your credit score, the number could range anywhere from 0-999. Experian’s scoring system runs from 0-999, with scores of 0 – 560 being very poor and scores of over 961 being excellent. Equifax on the other hand have a maximum score of 700 with anything under 279 being very poor and anything over 465 being excellent.

It’s because of this that credit scores can be misleading, it’s important to understand that the indicators that make up your credit score are generally a lot more important that the number itself.

confused by credit score

In general, the higher your credit score, the greater the chance of you getting good finance deals. After all, the reason we have credit files and credit scoring is to help lenders such as banks or credit card companies make informed lending decisions. Your credit score gives the lender a brief overview of level of risk that comes with lending to you.

How is a Credit Score Calculated?

This is where things get a bit more complicated… So let’s start simply. Your credit score is based on your past repayment behaviour.

Someone with a high credit score will have managed their past credit commitments immaculately. Whilst someone with a low score will have probably had some problems with their credit commitments or other bills. Beyond repayment history, there are several other factors that could cause your credit score to change. This includes:

Your credit utilisation rate: This is the amount of available credit you have versus your total debt. If you have 3 credit cards, all of which are maxed out, you credit utilisation is very high. Having high credit utilisation rates can lower your credit score as it may indicate poor credit management.

Recent credit searches: Usually, when you apply for an item of credit, the creditor will carry out a credit search. This credit search will leave a footprint on your file, stating that your file has been searched on that specific date. If you have multiple credit searches on your file within a short space of time, this can lower your credit score. Why? It indicates that you may be experiencing financial instability and are searching for credit in order to fix it.

Electoral roll: Your electoral status can affect your credit score. Being registered to vote at your current address makes you more traceable as a debtor. Equally, not being registered on the electoral roll makes you tough to trace.

juggling credit score

To start with, it seems like quite a lot to juggle. Like all things, as you understand it better it becomes easier to handle. Let’s look at this in a bit more detail to understand how a score can be effected by different information present on your credit history.

Different companies will calculate your credit score in different ways. The credit score Experian gives you will not only be different to the one Call Credit gives you, but, even if a lender uses Experian to run a credit check on you, they will often have their own “score card” running. This lender specific score card generates a different number when compared to Experian’s internal credit score. This is because each lender will add weight to differently to the many data points available on your credit file.

Credit Scoring Example

Let’s quickly look at an example of this. In this example there will be 2 things listed on your credit file.

Credit Card

£5,000 limit
£3,000 balance
£2,000 available to spend
1 late payment 13 months ago

Mobile Phone Contract

No missed or late payments

Here is how 2 different lenders could interpret this data:

Credit Score Calculation
Credit History Lending Example

In this example, Lender A puts more weight on late payments in the last 12 months vs last payments over 12 months ago, while Lender B gives any late payments in the last 3 years equal weighting. Can you see how different interpretations of the data on your credit file can change how the lender generates a score for you, and makes a decision?

Lender score card

Of course actual score cards used by lenders are a lot more complicated than this, and will take many different things into account when generating a final score. Have you ever been turned down by a lender, asked why and got a very generic answer? It’s not that they are trying to be unhelpful, it’s that the calculations behind credit decisions is not only complicated, but also hidden away in computer code instead of being accessible by their front-end staff. When you consider the amount of money the lenders spend on creating these bespoke scorecards you can see why they would want to keep it all a secret!

Hopefully you now understand why the actual credit score number is not very important. It’s the information on your credit file that holds the true value, and allows you to better understand how you can manage your credit to give the best possible impression to companies looking at it in the future.

Who Maintains My Credit File?

Your credit file is “looked after” by 3 credit agency companies in the UK. Lenders, utility providers and other companies report back to them details of contracts, debt, repayments and the overall status of the contract/loan agreement you have with them. Utility providers mainly report if your monthly payments (or lack thereof), while lenders will report this, but also details of any live credit lines (for example, your credit limit on a credit card), monthly repayments, how much has been repaid and how much is outstanding. They will also report if the account is in debt or has defaulted (payments have not been made on the account for a certain amount of time).

The 3 active credit agencies in the UK are:

The information they store is generally the same across the board, however in certain situations the information will not line up, this may be because certain companies only report to certain credit agencies – although this is pretty rare.

Credit agencies offer a reciprocal service to the business’ they service. This means that if a loan company wants to use a credit file of a customer from Experian, they will have to report back on any accounts the customer takes out through the company. The credit agency will also keep a record of the data requested by the loan company, this is known as a credit search.

What’s My Credit Score?

So now you know what a credit score is you will almost certainly want to find out what your score is, and what information each credit agency holds on you. Although bear in mind that the score is not the be-all and end-all of getting a out a loan.

Free Credit Score and Credit History

In the past the credit agencies used to charge their customers to access the data they held about you, luckily you can now access all this information for free. You just need to know where to look.

Call Credit – Credit Score and Report through Noddle

Noddle were the first company to offer a free credit report and did so using the data provided by Call Credit. They offer a completely free service that gives you your credit score out of 710, and a credit rating out of 5. It also shows you the average score in your area so you can see how you fair against your neighbours.

Noddle also offer a full credit report that includes your personal details (name, date of birth, address) along with all of your active, and closed, account details. When you click into each account it will show you the history of your account as shown in the example below:

Noddle Credit Status

While the above shows a perfect payment history, here is an example of what it would look like with missed payments:

noddle missed payments

This gives you a really simple, straight forward insight into the data Call Credit holds on you and I would highly recommend signing up for Noddle today (if you haven’t already) and check out the information they hold on you. While call credit are the smallest credit reference agency in the market they are becoming more and more popular year on year as they offer additional services to banks and lenders.

Experian – Credit Score and Report through Money Savings Expert Credit Club

Money Saving Experts Credit Club is one of the newer options to check out your credit score and credit history. It also happens to be one of the best due to some of the additional features it offers. Experian in the most popular credit reference agency and is used by most of the market. This means finding out the data they hold on you should be high up your priority list.

Credit Club offer a credit score out of 999. They also offer an affordability score broken down by Credit cards and loans, with mortgage affordability promised to be “coming soon”. These sections are broken down further into:

  • Debt ratio
  • Credit utilisation
  • Disposable income
credit affordability

This links back directly to how the lenders see your ability to repay loans and other credit lines. So the greener these are the better.

Along with these helpful overviews, Credit Club also offer your full Experian credit report which lays out you accounts, balances, search history and other information they hold on you. Similar to Noddle you are able to drill into each account to see your payment history. Although the layout is not quite as intuitive, but this may just be because I’m so used to how Noddle’s information is displayed.

credit club credit history

Overall Money Saving Expert’s Credit Club is an extremely helpful tool. As they are so well utilised by companies across the UK, ensuring you understand the information they hold on you should be of paramount importance if you are thinking of taking out finance in the future.

Equifax – Credit Score and Report through Clear Score

Clear Score have been around for about 3 years, and offer completely free access to your Equifax credit score and credit history. The score they offer is out of 700, and as with Noddle they allow you to compare your score to average scores in your area and the rest of the UK. Unlike the others free credit score products on this list, Clear Score allow you to see a complete history of your score since the day you sign up, this is a fantastic way to track improvements over time and to make sure you are making the right financial decisions over the long term. Along with a history of your score Clear Score keep a list of the changes to your credit report that month, giving a very helpful overview of the history of your financial dealings.

Credit score over time

Clear Score also give you an estimated score for next month based on any changes detected on your Equifax credit report. While not wholly useful in the grand scheme of things it definitely provides a more real-time idea of your credit performance.

Along with this (as you can tell, Clear Score have a lot of features!) you get a list of “Things you’re doing well” and “Things to improve”, which is a great place to start if you don’t have a great credit score. This is a massive advantage compared to Noddle, who make you pay for a similar feature.

Other than this Clear Score offer a simple credit report, again allowing you to dive into more detail about any account, open or closed. They show you a very nice chart showing spending, payment and balance which is a very helpful tool to ensure you are paying down your debts.

Clear score credit card example

Overall this service offers a very intuitive way to check and improve your credit score, and understand your credit history and what you can do to improve it.

IMPORTANT: Clear Score have recently been purchased by Experian, so the Equifax data may not be available for long! I recommend you sign up for this service as soon as possible.

Why Is My Credit Score Bad?

There are many reasons your credit score may be bad. The main culprits are usually:

Missing From the Electoral Roll

If you are not registered on the electoral roll at your address this could be holding your credit score back. Luckily it’s a very simple fix, just visit the gov.uk page here to get started.

Missed Payments

A single missed payment will have a small impact on your credit history, however, if you have a number of recent missed payments this is a definite warning sign that you are struggling to keep up with your credit commitments. Always try and keep your account payments up to date. Borrowing money from a friend or family member to make up a short fall (as long as you can pay it back) could be an option for some.

Defaults

A default is like a more sever missed payment. It generally means that your utility company, lender, or other company have made numerous attempts to get your account back up to date, and failed. The deadline has passed. Learn more on our Default page.

County Court Judgements

A County Court judgement (or CCJ) generally arises if your account has been defaulted (you are not paying it), and the person, or company, you owe money to has taken you to the County Court. The Court will then make a decision on whether the money is owed, if it is a County Court Judgement will be issued. Learn more on our County Court Judgement page.

Over Utilisation of Credit

If you are maxing out all of your credit cards, you may be over utilising your credit. By maxing out your available credit you are showing that you may not be being financially responsible, and that if you are given another credit card you are likely to do the same, which could put you in financial difficulty down the line.

Age

If you have just turned 18, your credit history will be non-existent. Not only this but because you are young lenders will assume you may be a slightly higher credit risk. Some lenders will not lend to anyone under 21.

Lack of Credit History

If you have never taken out a phone contract, or had an overdraft or credit card with your bank there is no history of your financial conduct. Without this history it is very hard to gauge the credit risk you pose. If you don’t have a credit history at all you may want to apply for a credit building credit card, if you pay it off in full every month you will pay no interest, but your credit worthiness will grow.

Time at Address

If you move around and change your address often you can see that it would make lenders nervous about getting their money back (if they can’t find you, they can’t chase you for your debts). Ideally you will have lived at no more than a couple of houses in the last 3 years. If you have this may be have a negative impact on your credit score.

There may be other things holding your credit score back, but these are the most important to get under control. There may also be incorrect information on your credit report…

Incorrect Information On My Credit Report

If you believe you have been managing your bills and finances perfectly, yet your credit score is still suffering, it may be due to incorrect information on your credit report. This could be due to inaccurate reporting by a company, or something more sinister, fraud.

credit score fraud

Identifying Incorrect Information

In order to identify any incorrect, or fraudulent information on your credit file you should use the free resources further up in this article to check, in detail, the full credit reports each of the 3 credit reference agencies hold on you. Looking at just one will not suffice as in some situations different information will be reported to to each of the reference agencies.

You should check all of your active accounts to ensure there are no anomalies. A great advantage of doing this is that you may come across old accounts you no longer use and want to close down to minimise the risk of fraudulent activity.

You should also check the amount of credit searches done, and by who they were carried out. When I took a phone contract out last year I realised that Carphone Warehouse had actually done two hard credit searches on me, when they only should have done one. While this didn’t impact my credit score it was still something that was inaccurate and needed to be corrected.

financially linked credit

It’s worth looking into your address history as well, to ensure this is correct and up to date. Along with anyone who may be financially linked to you as their credit history can negatively impact yours!

So once you’ve had a good look through your credit report, it’s time to correct those errors!

Correcting Errors On My Credit Report

In order to fix errors on your credit file you need a file a dispute with company that reported the incorrect information. So for example if UK Credit has reported a missed payment on your guarantor loans account which you do not believe to be correct, you should call up UK Credit and speak to their customer service team. They will have a process to look into and, if upheld, fix this for you.

Credit file error

In this situation you should try and find proof of the payment being made so if they ask for it you have it to hand. This could perhaps be a copy of a bank statement showing the payment being made on a specific date. In some situations once the company has reviewed the error they may decide it is correct, in which case you can elevate it, or accept defeat! If you do have strong proof the information is incorrect there should be no problem getting your credit file amended.

So in review:

  • Contact the issuer of the product
  • Ask them to rectify the issue
  • Provide proof if necessary
  • Wait for your credit file to update

You can also go directly to the credit reference agency that has the incorrect details to see if they can contact the company on your behalf. This is exactly what I did when I came across multiple credit checks by the same company, and within a month my credit report was corrected.