Each credit reference agency has a different method for working out your credit score, but they all use your personal information (such as your address), along with your financial history to see how likely it is you’ll pay back any money you borrow. Even small things, like how often you apply for credit cards and loans, can affect the rating on your credit report.
The three main credit reference agencies - Experian, Equifax and Callcredit - use different methods for working out credit scores, which means there isn’t a single ‘magic number’ you can turn to. Check out our guide on how to check your credit score if you’ve not done it before.
Whatever the number, the rule of thumb remains the same – higher scores indicate lower risk, and vice versa. For example, your Experian Credit Score will fall between 0 and 999, with anything between 881-960 being good and 961-999 considered as excellent.
You can check your credit score for free with some credit reference agencies.
Lenders deciding whether to give you money based on a three-digit number might seem simplistic, but there are lots of factors contributing to your credit report. The four key categories are:
Creditors like to know as much about you as possible – your name, address, postcode, salary, whether you’re single, have a family, rent your home or own it outright. All this helps to paint a clearer picture of who they’re lending to and whether you’ll be able to pay your credit card bill each month.
Credit scoring is about trying to predict what you’ll do in the future based on what you’ve done in the past. So, if you’ve always paid your debts, your credit history will reflect that and you’ll likely be the proud owner of a solid credit score. If, on the other hand, you’ve got outstanding debts, multiple loans and a patchy repayment history, then it may not be as sound. The good news is that there are specific steps you can take to improve your credit score.
Every time you apply for credit, you leave behind a footprint. Every time a lender, employer, insurer, landlord, or debt-collection company looks into your credit profile, they leave behind a footprint, too. If you have lots of enquiries over a short timeframe it may – on the surface – appear as though you’re desperate for credit, or struggling with bill payments. If you have very few enquiries into your credit profile, it shows a lender that you’re in control of your finances, which is likely to be reflected in your score.
Events like bankruptcies, insolvencies and County Court Judgements (CCJs) can leave marks on your record and will harm your score. But, on the plus side, there are other public records that can help your financial reputation. Being on the electoral register is one way lenders check you live at your given address. They’ll also use public records to see if you’ve had your identity stolen. They’ll also use public records to see if you’ve had your identity stolen. Read more about protecting yourself from fraud.
Everyone makes mistakes and getting to grips with your finances can be easier said than done. Plus, some of the causes of bad credit aren’t always easy to avoid. But a credit report isn’t like a criminal record; it won’t follow you around for life. It’s simply there to give lenders an idea of your recent financial situation. That’s why enquiries only stay on your report for up to two years, and on public records for up to six years.