Your credit score can influence everything from the mobile phone you use to the home you live in – so it’s worthy of some care and attention.
Here we explain how credit scoring works, look at why it matters so much, and suggest what you can try if your score needs a boost.
What is a credit report?
Your credit report carries up-to-date information on you (are you on the Electoral Roll? do you have any County Court Judgments against you?) and any credit-linked products you’ve got or have had recently. This includes mortgages, loans, credit cards, overdrafts and other debt-based agreements.
It’s maintained over a rolling six-year period, and records how well you’ve managed these credit products in terms of making payments on time and in full. It also notes how many times you’ve applied for products (more on this later).
This information is used to compile a credit score which rises and falls according to your financial behaviour. The purpose of a credit report is to demonstrate to financial providers whether you’re the kind of customer they want to lend to – and, if so, on what terms.
Why is your credit report so important?
Having a bad credit score can range from being inconvenient to life-changing.
It could mean you are rejected for everyday credit agreements including mobile phone contracts, pay-monthly insurance and even some energy deals – in short, any service you receive before paying for it.
But a poor score could also leave you unable to get a mortgage to buy your own home or replace the family car.
And even where you can get access to credit, a poor score might mean you’re offered less advantageous terms. For example, when a lender uses an interest rate in a product advertisement, it only has to offer it to 51% of successful applicants – the other 49% can be charged more for the same product.
What information is on my credit report?
Your credit report will list the following details:
- active credit accounts such as mortgages, credit cards, overdrafts and loans – and if there are any late or missed payments or defaults
- recently closed or settled credit accounts
- credit agreements such as mobile phone contracts and car finance
- personal details such as your name, date of birth and current and past addresses
- the names of anyone you have a financial association with – such as a joint mortgage or bank account
- public record information such as County Court Judgments (CCJs) against you, bankruptcies and individual voluntary arrangements (IVAs)
- whether you have committed fraud or have been the subject of fraud through stolen identity
- whether you are on the electoral register.
Where is my credit report held?
Your credit report is held by credit reference agencies. The three main agencies most commonly used by the big lenders trying to figure out what sort of borrower you might be are Experian, Equifax and TransUnion (formerly CallCredit).
Credit reference agencies are regulated by the Financial Conduct Authority (FCA) and, because they hold such valuable and sensitive data on individuals, also by the Information Commissioner’s Office (ICO).
The information each agency holds about you may vary slightly. However, there shouldn’t be too much discrepancy in terms of the picture they present of your eligibility as a borrower.
What scoring systems do credit reference agencies use?
Each credit reference agency employs its own system of scoring
- At Experian scores are marked out of a maximum 999. Above 960 is classed as ‘excellent’ while 560 or below is ‘very poor’
- At Equifax the maximum score available is 700. Above 465 is defined as ‘excellent’ and below 280 as ‘very poor’
- At TransUnion, the scoring system is out of 710 with 628 and above classed as ‘excellent’ and below 550 as ‘very poor’.
How do I access my credit report?
You have legal right to see information held about you in your credit report. Traditionally, this meant requesting copy of your statutory report by post for a nominal fee of around £2.
But since EU laws on privacy and data protection (GDPR) landed in 2018, all credit reference agencies must provide statutory reports for free. It’s very quick and easy to do via the agencies’ websites.
Note, however, that ‘statutory’ means just a basic report – not a full-blown credit score.
If you want more detail, you can opt to pay a monthly subscription for an ‘always-on’ credit monitoring service which offers real-time access to your credit report and provides alerts when there’s been a search or change to your credit file.
Many financial companies, such as price comparison sites, will offer to provide your credit score through commercial links they have with the credit agencies. But they’ll just show you the score rather than provide access to the report itself.
They also provide ‘eligibility checks’ – see below.
How do I know which agency a lender will use?
A lender does not have to tell you which credit reference agency (or agencies) it uses when you apply for credit – only if your application is rejected.
Banks and other lenders also voluntarily share data between themselves, meaning they are privy to financial information about you from sources outside your credit report.
It’s also important to note that some lenders employ their own scoring systems which they use in place of a credit reference agency, or alongside it.
How do I get a good credit score?
As well as making all monthly credit repayments on time and in full, there are other measures you can take to either protect or improve your credit score.
Here are some tips, with a little insider knowledge from James Jones, head of consumer affairs at Experian – the UK’s largest credit reference agency:
- Register on the Electoral Roll This is viewed by lenders as a mark of stability and could add a straight 50 points (out of a maximum 999) onto your credit score at Experian
- Keep credit card balances low Your ‘credit utilisation’ rate refers to the percentage of available credit that you use – and the lower it is, the better. Credit utilisation is especially important around credit cards. Balances below 30% of your limit can translate into 90 extra points at Experian, while using more than 90% of your credit card limit could wipe 50 points from your score.
- Check all information is correct If you spot anything on your credit report that is inaccurate, you can raise a dispute with the agency via your online report for free. This will involve an investigation and you may be required to provide evidence, but it could improve your credit score. This is different to a Notice of Correction, which is 200-word ‘explanation’ you are permitted to submit next to an entry on your report. Lenders must consider these notes but bear in mind they won’t improve your score and they can in fact slow down the credit application process.
- Don’t make multiple applications for credit This is a sure-fire way to raise suspicion among lenders and bring your score down. Staving off applying for any new credit for six months after your last application can boost your Experian score by 50 points.
- Decouple from old financial ties If you are associated with an ex-partner on your report who has bad credit, it will bring your score down too. Contact the relevant agency or agencies and get it updated.
- Keep some credit untouched While switching products can be good practice for getting the best deals, keeping some lines of credit to ‘mature’ will help your score – just holding the same credit card for five years can add 20 points to your Experian credit score.
How long will information stay on my score?
Your credit report lists the last six years’ worth of financial data from live accounts or from when accounts are settled or closed – even bankruptcies and IVAs.
But all time is not equal. The more recent the negative activity, the heavier it will weigh on your score.
For example, if you’ve missed a credit card repayment in the last month, Experian could deduct 130 points off your score. But if the missed payment was a year ago, it could have no impact at all.
Bear in mind, however, that scoring calculations are frequently re-calibrated, so this is only an indication.
How can I gauge my eligibility for credit?
Credit referencing is a lot more transparent than it used to be – and consumers have both greater visibility and control over their credit reports.
Before applying for credit, run a quick check of your own credit score first to rule out any surprises. You can always sign up to a comprehensive version of your report and cancel within the free 30-day trial period.
Online eligibility tools offered by lenders and comparison websites are also a boon. These carry out ‘soft searches’ which are not visible on your credit report but offer an indication of whether you are likely to be accepted for a particular deal and, in some cases, even what interest rate you may be offered.
Common credit scoring myths
Finally, there are some common myths and misconceptions around credit scoring, which can be useful to dispel:
- “Numerous rejections are bad for your score…” Lenders don’t see rejections for credit – only applications. That said, numerous applications imply you have been turned down numerous times too.
- “It’s best to close credit card accounts you’re not using” In fact, lenders can prefer to see several lines of open credit that you are not utilising – it means you’re not dependent on one.
- “You can be added to a black list” There is no black list – just very poor credit scores.
- “A particular address can affect your credit score” Credit scores apply to people, not property. This means you will not be associated with your landlord, flatmates – or even your spouse – unless you have a financial association with them. It just matters that you are on the electoral roll.
- “Your salary is included in your credit report” Only credit agreements feature on your credit report, so your salary is not relevant and is not listed. By the same token, your current account balance will only feature if you’re overdrawn.
- “Checking my credit report will raise suspicion” Lenders cannot tell if you have checked your credit report.
- “Lending decisions hinge entirely on your credit score” Your credit score is very important, but lenders also employ their own more subjective ‘policy rules’. For example, if you’ve recently paid off a bad debt in full, while your score might not improve, it could be enough for the lender to show you a green light over a red one.