What is a Credit Score?
In the UK, three major credit reference agencies Experian, Equifax, and TransUnion each one gathers data from public records, lenders, and service providers to generate a credit score. This score reflects your financial management and predicts your likelihood of repaying borrowed money. A higher score generally increases your chances of being approved for credit, though it’s not a certainty.
You don’t have a single, universal credit score. Each agency may have different information about you and uses its own scoring system, which means your score can vary. Additionally, your score changes over time as your financial situation evolves. When you apply for credit, lenders also perform their own assessments, considering your credit record, affordability, and account history.
How Does a Credit Score Work?
Credit scores are derived from various sources of information collected by credit reference agencies, including:
Types of Accounts: Managing different types of credit, such as mortgages, credit cards, and loans, demonstrates your ability to handle various borrowing forms.
Electoral Register: Being registered to vote helps verify your identity and address, which can positively impact your score.
Court Records: Negative records like defaults, County Court Judgments (CCJs), Individual Voluntary Agreements (IVAs), and bankruptcies can harm your credit score for up to six years.
Spending Habits: High debt levels and frequent use of credit limits can indicate reliance on credit, while low balances can improve your score.
Account History Length: The age of your credit accounts matters. Longer-held accounts suggest good financial management.
Account Management: Lender’s report missed, late, or defaulted payments, and exceeding credit limits, which can negatively affect your score.
What is a Credit Score Used For?
When you apply for credit, lenders check your credit record with their preferred credit reference agencies to assess any risks. Your credit score influences the interest rates and credit limits offered to you. This process is standard for various credit applications, including mortgages, credit cards, personal loans, overdrafts, and car finance.
How is a Credit Score Graded?
Each credit reference agency uses a different scale to grade credit scores:
Experian:
Excellent: 961 – 999
Very Good: 881 – 960
Good: 721 – 880
Poor: 561 – 720
Very Poor: 0 – 560
Equifax:
Excellent: 811 – 1000
Very Good: 671 – 810
Good: 531 – 670
Poor: 439 – 530
Very Poor: 0 – 438
TransUnion:
Excellent: 628 – 710
Good: 604 – 627
OK: 566 – 603
Needs Some Work: 551 – 565
Needs Work: 0 – 550
How Lenders Calculate Your Credit Score
Lenders use your credit score and other factors to evaluate your eligibility, including:
Provided Details: Personal and financial information such as your address, employment status, income, and expenses.
Affordability: Your ability to repay based on income, outgoings, and existing debts.
Account History: Records of your past accounts with the lender, including management performance.
Improving Your Credit Score
Improving your credit score takes time, but you can take several steps:
Pay all bills on time, including credit repayments and household bills.
Manage accounts responsibly by staying below credit limits and reducing debt balances.
Limit credit applications to avoid multiple ‘hard’ searches that can lower your score.
Register to vote, as being on the electoral roll can boost your score.
Checking Your Credit Score
Regularly checking your credit score, especially before applying for credit, is advisable. Ensure the information held by each credit reference agency is accurate. If you find errors, you can dispute them with the relevant agency to correct your record. The agencies used by Lloyds Bank are TransUnion, Experian, and Equifax.
