Understanding your credit score

This is a number, calculated by adding up or subtracting scores for different items in your credit record, including:

• Your payment history, including any accounts that have ‘defaulted’
• The amount of money you owe
• Whether you've taken out credit recently
• The different types of credit you’ve taken out
• How long you’ve been using credit for
• Any current or recent history of insolvency, such as bankruptcy or an individual voluntary arrangement (IVA)

Because each creditor has its own way of using credit scores (and they sometimes give preference to one credit agency above others), there’s no consensus on the exact numbers that are ‘good scores’.

These good scores will be in the upper range. The latest information shared by the credit reference agencies suggests:

• TransUnion: Excellent is between 781 and 850. Good starts at 658
• Equifax: Excellent is above 800. Good is between 670 and 739
• Experian: Good is between 881 and 960. Fair is between 721 and 880

There’s no need to worry about checking your own credit score. It’s only the checks made by creditors that are recorded as the ‘hard credit checks’ that can raise red flags. When you check your own credit file, this isn’t seen by anyone except the credit reference agency.

A larger number of checks by lenders on your credit score by in a short amount of time can be a red flag. This implies you’re applying for a lot of credit and, therefore, it may be risky to lend to you.

It can be a good idea to check your credit history on a regular basis, so you can:

• be sure all your details are up-to-date and accurate
• fully understand who you owe money to
• make sure there are no debts, county court judgments (CCJs) or decrees you’re unaware of.
• can contact the credit reference companies to let them know about any wrong information and to query anything that doesn’t look right.

The simple answer is: by paying your bills on time and by using credit sensibly - always keeping to payment arrangements.

This means you need to carefully budget for the interest on repayments as well as the amount you’ve borrowed and keep track of the dates payments are due.

You can build up a credit history by:

• Opening a bank account
• Taking out a credit card and making sure you pay this off in full every month
• Getting a mobile phone contract, again keeping up with the agreed payments

It can take some time to improve, as details of new bank accounts or credit accounts can take as long as three months to be added to your credit file.

But by keeping your personal details up-to-date and continuing to pay your credit on time, you should see your score gradually improving.

Find out more about what’s recorded in your credit file.