How to understand your credit score

Andy Webb

Understanding your credit score can feel like a daunting task. But improving it could be simpler than you think…

If you’re planning to borrow money…

Whether through a loan, re-mortgaging or opening a new credit card, your credit score will be the biggest indicator as to whether the bank will say yes or no to a loan. 

But what exactly is it? Well, it’s very simple. Credit reference agencies collect data about you and your money and use it to build a credit report. Your credit score—or credit rating, as it’s often called—is just a numerical representation of this report. 

The report itself contains information such as your address and date of birth, as well as how much money you currently owe, any bank accounts you have and details of missed payments, bankruptcies or defaults.

When you apply for money, the companies will ask one of the agencies for this information and use it to assess your finances. A healthy score can get you the best deals, but a low score means there’s a greater chance you’ll get higher interest rates, smaller credit limits, or be turned down completely. 

And if you’re rejected for any credit, that can appear as a black mark on your credit file, lowering your score further.


Understanding your credit score

There’s often a fair bit of confusion around credit scores. In part this is because there are three different scores, all calculated in different ways by different companies.

Experian score out of 999, whereas Equifax score out of 700 and Call Credit give a rating out of 5. So a good score with one could be a poor score with another. 

Even so, assuming the information held is correct, if one is good, the others should be too.


How to check your credit score

Both Experian and Equifax offer subscriptions to monitor your report, costing around £15 a month. But most people won’t need to pay this.

Instead you can take a look at your scores for free online, and even check your report too.

For your Experian score, register with Money Saving Expert’s Credit Club and to check your Equifax score go to Clear Score. The only downside to these free versions is they can be a few months out of date. Meanwhile Call Credit provide your report and score for free via Noddle.

If you’d rather get the up-to-date report in paper, you can pay £2 to each of the three main companies and get a copy sent in the post. Look out for any mistakes or anything that looks fraudulent.


How to improve your score

If your score needs a boost, there are a couple of easy wins. Fixing any out-of-date information or errors can make a huge difference, and if you’ve not registered to vote, getting on the electoral roll will help too.

Longer term, you need to make sure you’re making repayments on time and limiting your applications for new credit. 

It’s worth checking your score every month with the free sites just to make sure it’s ticking along OK. That way, if there’s a sudden drop, you’ll be ready to fix it before it becomes a problem.