What is a credit score?
A credit score is a score you get based on your ability to borrow and pay back money. Your score is informed by your credit history. If you have things like credit cards, store cards, a car on finance, or a loan, your credit score will show how well you have paid these items back. Those who regularly use credit and pay it back show that they are trusted borrowers, and will have a higher score. If you have fallen into debt, failed to pay things back or have a lot of charges or CCJs (county court judgements) from not paying, your credit score will be damaged.
If you’ve never owned anything on credit, you won’t have a negative score but you won’t have proven you can borrow and pay back money. This means your score won’t be as high as someone who has borrowed more, even if they haven’t paid it back yet.
This can feel counterintuitive, as if you’re being punished for not having debt! But it’s simply based on your history – you don’t have a history of transactions, so it’s harder to judge how likely you are to be a good borrower.
Why are there different types of credit score?
There are three main credit reference agencies (CRAs): Experian, Equifax
Different shops, lenders and other companies who need to check scores use different credit rating agencies. You can find out which agency your lender uses to get ahead on your mortgage, or you can keep an eye on all three.
Each credit reference agency uses a different scoring system:
Experian is out of 999
Equifax is out of 700
TransUnion uses two models. The first ranges from 300-850. The second goes from 501-990.
How can I check my credit score?
Checking your score used to be quite difficult – you’d have to request information from banks, or you’d have to pay to have the details sent to you. Now, with freedom of information at the forefront of everyone’s minds, access to your credit score and history is easy.
Whilst most opportunities to check your credit score are free, make sure you check before filling out the forms.
Clearscore is an app that will give you a monthly update on your credit score, and give you tips on improving your score. It uses the Equifax scoring system, and it’s free to use.
You can use the MoneySavingExpert Credit Club
, which checks Experian, and is free to use.
If you want to access your TransUnion report, you can use Credit Monitor, which is also free to use.
You can check all three by using CheckMyFile, but you only get a 30 day free trial, and then it’s £14.99 a month.
The credit reference agencies themselves will also allow you to see your report directly, but often you’ll need to sign up to pay monthly for access, or use a free trial for the first 30 days and remember to cancel.
What is a good credit score?
You need to bear in mind which agency you’re measuring by when considering a good score. If you use Clearscore, it’ll compare your score to the UK average score, and the score in your local area.
On the Experian scale
(out of 999), over 700 is considered good, and over 800 is considered excellent. Most credit scores fall between 600-750.
On the Equifax scale
(out of 700), 420-465 is good, 466-700 is excellent.
, they’ve actually got two models they measure by. On the original (up to 850) they say anything over 835 is excellent, and this would be equivalent from 931-990 in the newer model. For the first model, TransUnion say a general rule of thumb is that over 760 will get you a favourable loan rate, but this can change depending on the lender.
What credit score do I need to get a mortgage?
There’s not a one-size-fits-all approach to getting the perfect credit score for a mortgage. If you’re at the lower end of the scale, you may still get accepted for a mortgage, but the interest rates are not going to be as good as if you had a higher score.
Whilst the higher your score, the better, it’s actually your credit report and credit history that may matter more.
Looking at unpaid debts, CCJs, the ratio of debt to income, whether you’ve used a payday loan, and a range of other factors will give mortgage underwriters an idea of what kind of borrower you are.
How can I improve it?
There are a few simple things that will improve your credit score that you might not have considered:
- Check you’re on the electoral register in your current home.
- See if you are connected to someone else on your credit report and disconnect if they are a negative connection (you may have been connected to a previous housemate with bad debt, for example).
- Pay off any monthly credit owed as soon as possible by setting up a direct debit. Missed payments can damage your credit score!
- Stop searching for credit or seeing if you’re eligible – too many ‘hard’ searches or applications for loans/credit cards can damage your score, especially if you receive a rejection.
Long term improvements
- Pay off debts so that you’re only using 25% of your credit allowance.
- Stay at one address for a decent amount of time.
- Don’t open up new accounts unnecessarily.
- Use a credit card little and often, paying it off on time.
Starting from scratch
- Get yourself a credit card and use it for small items, regularly. Pay it off immediately.
- Get your name on some of the bills at your property.
- Buy something on 0% finance, and set up a monthly payment to ensure it’s paid off promptly and without paying any extra.
You can also have a look at our article '5 ways to improve your credit score'.
Repairing a bad credit score
In some cases, you may have damaged your credit score with bad experiences in the past, perhaps having a credit card when you were a teenager, or getting into debt, forgetting a store card payment, or being connected to someone else with bad credit.
You can absolutely repair your credit rating.
- Credit repair loan – this is a loan designed specifically to improve your credit. The lender approves an amount for you to borrow (say, £60) and this is put into a separate account for you, but you do not have access to it. You then pay £5 per month over 12 months to repay the amount. You then receive the money back that you saved up over that time, and the activity will be registered on your credit score.
- Credit repair credit card – this works in the same way, although you will actually be able to use the credit card, so you have to be a bit more controlled. It will have a very low limit and is designed just to get you using it a little and paying it off immediately.
How long does it take to improve your credit score?
Information is constantly being added to your credit report, though many providers only give you a monthly update. If you make a lot of small changes like updating the electoral register and disconnecting from anyone who would pull your score down, those should show up quickly. If you’ve been gradually improving by using a credit card, that may take a little longer to show up.
If you’ve decided to buy a property, the best thing to do is look at your credit score and start improving it as soon as possible.
What if my credit is really bad?
If your credit is really bad, you will struggle to get a mortgage. A lender will not want to lend a potentially huge sum of money to someone who has a history of not paying it back regularly.
If you have bad credit, don’t try and get a mortgage anyway – take the time to improve your score first.
Otherwise, you can be stuck in a downward spiral in which the more applications you take out, and the more rejections you receive, the more your score suffers. It’s also important to remember that even applying for credit cards and loans can impact your score.
The first step is to find out your score, assess where you can make improvements and work on building it up before you attempt to get a mortgage.