A complete guide to credit scores

This guide will help you understand credit scores and credit history. We'll cover what a credit score is, what affects your credit score, and how you could make it better. We'll also dive into what makes up your credit history. Whether you have bad credit or are starting fresh, this guide is for you.

What is a credit score?

In the UK, a credit score is a number given by credit agencies. It's a quick way to see how risky it might be to lend to you. It's based on your financial actions, like paying bills or taking out loans. The better you handle money and debts, the higher your score will be. For more information, read our guide: How does credit scoring work?

Why does a credit score matter?

Your credit score plays a big role when you want to borrow money. Lenders, like banks, look at this score. It helps them decide if they'll give you a loan or a mortgage. A good score can make borrowing easier. It can also lead to better interest rates. If your score is low, borrowing can be hard. It might also cost more due to higher rates. 

What is a good credit score in the UK?

A good credit score varies from company to company. Credit score ranges vary depending on the credit agency:

Your credit score range with TransUnion

Your credit score range with Experian

Your credit score range with Equifax

Here's what each range often means:

Very poor/poor:

• It's hard to get approved for loans or credit cards.
• You'll likely face high interest rates if you do get approved. 

Fair:

• You might get approved for some forms of credit, but not all.
• Interest rates will be higher than if you had a good or excellent score.

Good:

• You're likely to be approved for many types of credit.
• You'll get fairly good interest rates.

Very good/Excellent:

• You'll probably get approved for most types of credit.
• You're likely to get the best interest rates available.

Knowing your place in this range can help you plan your financial moves. Keep an eye on it, especially if you plan to borrow money.

What affects my credit score?

Payment history

One of the biggest things that affects your credit score is your payment history. This means how often you pay bills on time. Late or missed payments hurt your score. On the other hand, regular, on-time payments can boost it. Lenders want to see a history of reliable payments. It shows them you're a safe bet.

Credit utilisation

Credit utilisation is another key factor. It's about how much of your credit limit you're using. For example, if you have a £1,000 credit limit and you've used £300, your credit utilisation is 30%. Keeping this number low is good for your score. Aim to use less than 30% of your limit. Lenders see high utilisation as risky. It suggests you might struggle to pay back what you owe.

Length of credit history

The length of your credit history can impact your score. A longer history is usually better. It gives lenders more data to assess your money habits. It can also show you can manage debt well over time.

Types of credit in use

Having a mix of credit types is good for your credit score. This includes credit cards, mortgages, and loans. A variety shows you can handle different kinds of debt. But too many accounts can make you look risky. So aim for a balanced mix.

What is credit history?

Credit history is a record of your financial behaviour. It shows your loans, credit cards, and other debts. It also shows if you pay on time. It's not the same as a credit score. Your score is a number, but your history is a full report. It gives a detailed look at your past choices.

Why does credit history matter?

Your credit history is crucial for lenders. It helps them see how you've managed debt over time. Unlike a credit score, which is a snapshot, history gives a full picture. Lenders use it to assess the risk of lending to you. A good credit history can make it easier to get approved for credit. It can also get you better rates for loans.

What is the difference between credit score and credit history?

A credit score is a number that shows how likely you are to pay back your debt. Meanwhile, your credit history is a detailed record of your past financial behaviour such as payments and debts. If you are new to credit or haven't used it in a while, you may not have a credit score yet but still have a credit history.

In short, a credit score summarises your creditworthiness while your credit history is detailed in your credit report. Both are key when you want to borrow money. Knowing about your score and history is vital. It can help you get loans or a mortgage. It can also affect the interest rate of loans you get.

How can I check my credit score and credit history?

What are credit reference agencies? 

To check your credit score and history, you'll need to go through a credit reference agency. The main agencies are Experian, Equifax, and TransUnion. Each agency collects data to create your credit report. This report is the basis for your credit score. You can check your Experian credit score, get a credit report from Equifax, or use TransUnion to do the same. Different lenders might use different agencies, so it's a good idea to check all three if you can.

How can I access my credit report?

Getting a credit report is often free and easy. You have a legal right to check your credit report for free once a year from each agency. To get it, you'll usually need to:

1. Go to the agency's website.
2. Fill in your details.
3. Verify your identity, which might require answering some security questions.

Once done, you'll have access to your report. Some agencies even offer a service to check your credit score free of charge at any time. To learn more, read our guide: How can I check my credit score?

What should I look for in my credit report?

A credit report can look confusing at first. But it's easier to understand if you know what to look for. Here are some tips:

• Personal info: Make sure your name, address, and other details are correct.
• Account status: Check the status of your credit accounts. Look for late payments or defaults.
• Credit enquiries: These are the checks made on your report. Too many hard enquiries can be a bad sign.
• Public records: This section lists things like bankruptcies or court judgments.
• Credit score range: Your score will be in a range like poor, fair, good, or excellent. Know where you stand.

Take time to go through each section. If you find errors, you can contact the agency to fix them. Understanding your report helps you know what affects your score. It can also help you spot any signs of identity theft.

How can I improve my credit score?

How can I manage my money better?

Improving your credit score starts with good money habits. Here are some tips specifically for managing credit cards and loans:

• Pay bills on time: Late payments can hurt your score.
• Keep balances low: Try to use less than 30% of your credit limit.
• Don't close old accounts: Age of credit history matters.
• Be careful with new credit: Opening too many new accounts quickly can lower your credit score.

By following these steps, you're more likely to see your credit score rise over time. Consistent good money habits over time are the best way to improve your score.

How can I repair my credit?

If you have a bad credit history, don't panic. There are ways to repair it:

• Check credit report:  First, know what's on your report and dispute any errors.
• Settle debts: Pay off any outstanding amounts or negotiate with creditors.
• Create a budget: Stick to a spending plan to ensure you can make all future payments.
• Seek advice: Consider talking to a financial advisor or a debt counsellor.

Taking these steps can slowly help to improve a poor credit score or fix a bad credit history. It won't happen overnight, but with patience and discipline, you can work towards a better financial future.

How can I build credit from scratch?

If you're new to credit, building a good score can feel like a puzzle. But it's not as complex as it seems. Here are some steps to start you off:

1. Open a bank account: This is often the first step in establishing a financial footprint.
2. Apply for a starter credit card: Use it for small purchases and pay off the balance in full each month.
3. Pay all bills on time: Utility bills and even rent can impact your credit history.
4. Become an authorised user: Get added to a family member's credit card to benefit from their good credit behaviour.
5. Check credit score free: Keep an eye on your score to see how you're doing.

By following these steps, you can build a solid credit history from the ground up.

Summary

Understanding your credit score and history is crucial for your financial well-being. From learning how to check your credit score free of charge to figuring out how to improve it, being informed is key. Whether you're dealing with repairing bad credit or you're just starting to build your credit history, it's a long-term commitment.

1. Know your score: Always be aware of where you stand.
2. Understand the factors: Payment history, credit utilisation, and the length of credit history are just a few key aspects that affect your score.
3. Check your history: Your credit report provides a more detailed look at your financial behaviour over time.
4. Take steps to improve: Proactive steps can make a difference, whether it's better money management or repairing existing credit issues.

Remember, a good credit score and a clean credit history open up financial opportunities and make life's bigger purchases more attainable. Stay vigilant and proactive in managing your credit, and you'll be on the path to a more secure financial future.

Please note that this guide is for informational purposes only and is not a substitute for professional financial advice. While we strive to provide accurate and up-to-date information, it's important to consult with a qualified financial advisor for personalised recommendations tailored to your circumstances.