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Guide to credit scores

Guide to credit scores

Credit scores will be familiar to anyone who’s applied for a loan, mortgage or credit card. Wherever money is borrowed, there’s a credit check.

Your credit score lets lenders know if you’re a reliable person to lend to and your score helps them decide how much money you could borrow. Learn all about how to improve your credit score and more.   

In this guide, you’ll find out:

What is a credit score?

A credit score is a number that rates your credit worthiness. Lenders use this figure to decide whether you qualify for credit and determine what interest rate and credit limit they may offer you.

Credit scores range from lower scores that are considered poor, to higher scores that are rated exceptional. The higher your score, the lower risk you may appear to lenders. 

What are credit scores used for?

Your credit score is one of several factors that lenders assess to decide on whether to offer you credit. 

Credit scores can be used when you apply for a:

  • Credit card
  • Mortgage
  • Loan 

They are also used when you apply for other types of credit, including mobile phone contracts, car leasing agreements and more.

Having a healthy credit score gives you a better chance of being accepted and could see you get better interest rates and credit limits on the agreements you’re offered. 

How do credit scores work?

Credit scores work by looking at your:

  • Credit applications
  • Bank accounts that are currently open
  • Total debt
  • CCJs and bankruptcies
  • History of making repayments
  • Financial history
  • Credit searches
  • People you share other credit commitments with
  • Address
  • Other factors

The companies who report, update and store credit history information are called credit reference agencies (CRAs). There are three leading agencies in the UK:

They hold data on your financial history, also known as a credit report, which they use to generate your credit score, whenever it’s requested.

Each agency uses a different credit scoring system. Scores range from 0 as the lowest credit rating, to the maximum number, deemed as an excellent credit rating. 

Credit Agency Experian Equifax    TransUnion
Score 0-999 0-1000 0-710


However, these scores are just indicative, and are not directly used in a lending decision. Instead, lenders will check your credit report, information given on your application form and internal information (if you have other products with the lender).

How are credit scores calculated?

Your credit score is based on the credit report that CRAs hold on you. This shows how you’ve managed any debts and bills throughout your financial history.

Some factors that are assessed when calculating a credit score include:

  1. Payment history – how regularly you have made loan or credit card repayments and if they have been on time, as agreed.
  2. Total amount owed – how much money you currently owe from borrowing on credit cards, loans, mortgages etc.
  3. Length of credit history – the time period of existing or historic borrowing and when you took out this borrowing.
  4. Types of credit – what types of credit you have been given, whether it’s a loan, credit card, mortgage, an arranged overdraft or a mobile phone contract with a handset.
  5. New credit – any new borrowing arrangements you have signed with a lender will be taken into account.
  6. Hard searches – whether you have submitted a full application for credit. Checking your own credit score doesn’t apply, as this is known as a ‘soft search’.
  7. Existing debts – if you’ve been issued a CCJ, an Individual Voluntary Arrangement or have been made to file for bankruptcy.

Each factor can affect a final credit score. Here’s a breakdown:

  • Payment history - This is one of the most important contributing factors as it can show whether you’re responsible when it comes to money. For instance, do you keep up with loan repayments or credit card bills?
  • Total amount owed - Essentially, how much debt do you have at the moment. This looks at the amount of credit you have currently and how you’re using it, also known as credit utilisation.
  • Length of credit history - A longer credit history is generally considered less risky by lenders, as there is more data available to show that you’re a responsible person to lend to. For example, if you have repaid loans and credit card bills over a long period of time.
  • Types of credit - This shows if you have revolving credit (credit cards) or instalment credit (car and mortgage loans) currently taken out in your name.
  • New credit - New credit factors in the number of new accounts you have. It also shows how recently you applied for a new account and when your most recent account was opened. 

Why are credit scores important?

It’s fair to say that credit scores can have an impact on your financial future. They not only impact whether your lending application may be approved, but also how much a lender could offer you and what interest rate you’ll pay.

It can affect your chances of being approved

A ‘good’ score increases your chances of being approved for credit cards, mortgages and loans. If you have a ‘poor’ score, you may be offered lower limits. And even if you get accepted for a loan, credit card or mortgage, you may be offered a higher interest rate than the advertised APR representative.

It is used by other companies and services

Credit scores aren’t just crucial for all loans, credit cards or mortgages. Other service providers such as mobile phone companies and car finance providers may also run credit checks to decide whether to approve your application for a service. 

Keep in mind that your financial history is kept on your credit reference file for around six years.

How to improve your credit score 

Improving your credit score can be easier than you might think. Here are some tips that could help raise your rating.

Make sure you’re registered to vote

Lenders need to know where you live – and anywhere you’ve lived in the past three years so they can complete their checks. To help them, register on the Electoral Roll. This will make it easier for CRAs to find your name registered next to your current address, as part of checks against your financial history.

Take out a mobile phone contract

A good way to start building a credit record if you don’t have one is to take out a mobile phone contract. This can help to build a credit record by showing you can make the payment on time each month. Paying regularly helps to show financial responsibility.

Apply for a credit card

Using a credit card  and repaying it on-time regularly shows that you’re a responsible person to lend to and can make repayments comfortably, especially if you’ve not had one before. If you apply for a card and spend small amounts on it every month, you could start to build a positive credit history.

Review your credit report

It’s good practice to check your credit report for any errors that could negatively affect your score. If you find some inaccurate information, you can raise a dispute with the CRA directly. You may see your score increase.   

Helpful credit card guides

Credit cards explained

Credit cards explained

A detailed guide to buying and using a credit card

apply for a credit card

How to apply for a credit card

How to apply for a credit card and use it safely

Credit card glossary

Credit card glossary

Find out the terms you need to know in our glossary

Frequently asked questions

What is the highest credit score?

The highest credit score you can achieve will depend on the credit agency that holds information about your financial history. Each has their own scoring system:

  • Experian – 0-999
  • Equifax – 0-1000
  • TransUnion – 0-710

Remember, these scores are just indicative and are not how lenders make a final decision.

Why can’t I get a credit card?

There are a number of reasons you may not be approved for a credit card. For example, if you have too much debt, lack a regular income, have a low credit score or are under 18.

You could run a credit score check to find out your current credit health, so you can make more informed decisions and take steps to improve your financial situation. 

How does a credit card improve your credit score?

Having a credit card and keeping up with the minimum monthly payment can show to lenders that you’re responsible with your money. This is one of the factors that is taken into consideration by credit reference agencies (CRAs) when they look at your financial history and develop your score. Showing you can make regular repayments on credit cards, loans and mortgages may help improve your score.

How can I check my credit score?

You can check your credit score by getting a free credit report from one of these UK credit reference agencies:

  • Experian
  • Equifax
  • TransUnion

For more queries and information on credit scores and credit cards, including managing your card and fees, check out our FAQs page.