At some point in our lives, most of us will have to get to grips with credit scores, from what they are used for to how you can build a good one. To help you understand, we’ve tackled some of the most commonly asked credit score questions.
Simply put, credit scoring is how would-be lenders – AKA banks and businesses that offer loans – assess the risk involved in potentially offering you credit. What do we mean when we say credit? Well, this could range from a mobile phone contract (yes, they count as credit agreements) through to loans, mortgages and of course credit cards.
Your credit score is a three-digit number that is calculated using all of the data that a credit reference agency holds on you.
A credit report, however, contains all of the information held on an individual about how they have historically managed and repaid debt. This includes how and when you pay your bills, how much debt you have, and how long you have been managing credit accounts. If you’re over 18 and have taken out a loan, credit card or mobile phone contract, it is likely that a credit reference agency holds a copy of your credit report.
Lenders are required to lend responsibly, which means that before they do so, they have to assess if you are likely to repay the money that you borrow, if you can afford to borrow it, and the likelihood of you making timely payments. All of this is referred to as creditworthiness.
No. In the UK, there are three main credit reference agencies – TransUnion, Experian and Equifax. Each of them works with building societies, banks, mobile phone companies and other major retailers to help those businesses make a quick and informed decision about whether the person applying for credit is likely to pay it back.
Your scores are likely to be different with each agency, as they use their own systems with different maximum scores. For example, TransUnion’s score is out of 710, Experian’s out of 999 and Equifax’s out of 1000.
The higher the number, the better. If we take TransUnion’s scores as an example – 566-603 is fair, 604-627 is good and 628-710 is excellent.
Firstly, it’s important to note that your credit score is constantly changing. Here are the most common factors that can affect it:
Here’s a list of when companies may look at your credit score or report:
Here’s a handful of top tips for building a good credit score:
There are a variety of free services that will give you access to your credit score. Some banks, including Ulster Bank, allow you to check your credit score via their banking app. Alternatively, you can view your score directly with one of the three credit reference agencies: TransUnion, Experian and Equifax.