In this guide
What is a credit score?
Your credit score is a rating based on your personal financial history. It helps lenders decide how creditworthy you are, and whether they’re prepared to lend you money in the form of a credit card, personal loan or mortgage.
There are three credit reference agencies (CRAs): Experian, Equifax and TransUnion. They take your financial history and use it to put together a credit report. The information in that report is then used to create a credit score for you.
What do lenders do with my credit score?
Before saying yes to giving you a personal loan, credit card or other form of lending, lenders such as Post Office have to make sure you’re not too much of a risk. They need to be confident you’ll pay back the loan or balance on time and in full, or in the minimum amounts required along the way.
To do that, they contact the credit reference agencies to get your credit score, which shows how well you’ve managed the credit you’ve been given so far. Based on that, they’ll make their decision. There’s more on what contributes to this score in our FAQs section below.
Why is it important to have a good credit score?
The higher your credit score, the less of a risk you are to lenders and the more likely they’ll be to issue you with a credit card or loan you money.
If you use credit regularly and responsibly, it’s likely you’ll have a high credit score. But this score isn’t set in stone. It can go up or down, depending on how you’re managing the credit you have right now.
Experian, Equifax and TransUnion have different scoring ranges. Your score might be different with each agency. It’s possible to have two different scores from two different agencies that indicate whether you’re a high or low credit risk. Check our common questions section below for what counts as a good or bad credit score.
How to check your credit score for free
You can use free checker tools from card providers, such as CreditWise from Capital One, to check your credit score.
It’s also free to access the full credit report and credit score the credit agencies hold on you. Just visit their partner websites: Experian MSEs Credit Club, Equifax ClearScore, Intuit Credit Karma. You can also request a paper copy of your credit report if you prefer. Try to do a credit score check and review your credit report held with each of these agencies regularly, at least once each year. Even small errors such as the wrong address can affect your credit score and potentially cause problems when you apply for credit.
How can I improve my credit score?
It is possible to optimise your credit score. The first thing to do is check your credit report with the three agencies and pinpoint what may be dragging your score down. You can see your score and request a copy of your full credit report at any time. Some services are free, but you’ll need to pay a small fee for others. If there are any mistakes or entries that need to be updated, you can dispute them.
Here are a few simple ways to boost your credit score:
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Make sure you’re on the electoral roll
Lenders look for stability in borrowers. When you register to vote, you go on the electoral role. To get on it, you give details like your name, address, date of birth and your electoral number. It’s an easy way for lenders to confirm your identity and the accuracy of your details.
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Be more reliable when it comes to paying bills
Lenders loan money on the understanding that you’ll make regular repayments. Simply paying your bills on time, every time, will help boost your credit score long-term.
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Consider getting a debt consolidation loan
You may be able to apply for a debt consolidation loan to help manage all your existing debts with one monthly payment. You can check your eligibility without affecting your credit score further.
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Consider getting a credit builder card
Getting a credit-building credit card may also help you improve your credit score. These are credit cards with low credit limits and a higher than average interest rate. The sum you can borrow is therefore low but the interest you pay on what you borrow is high.
First, check if you’re eligible for a credit builder card without affecting your credit rating. If you are and you successfully apply, use your card sensibly to build up your credit rating. Make sure you make the minimum monthly payments on time and stay within your credit limit. Not doing so could harm your credit rating further.
If you're concerned about overspending on credit cards, read our tips on dealing with credit card debt.
Key takeaways
- Your credit score is a rating based on your personal financial history
- Lenders contact agencies like Experian to get your credit score
- The higher your credit score, the less of a risk you are to lenders
- Make sure you’re on the electoral roll
- Being reliable when it comes to paying bills helps towards a good score
Common questions about credit scores
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All sorts of factors, including the number of credit applications you’ve made, can contribute to a good or bad credit score. That’s why it’s important to check the likelihood of being approved for borrowing before you go ahead and apply.
Providers often offer tools that let you your quickly check your eligibility for a personal loan or credit card without affecting your credit score in any way. A soft search won’t impact your credit history, and only takes a couple of minutes.
Here are some other factors that can affect your credit score:
- Your payment history: This includes missed payments, defaulted payments and any County Court Judgement (CCJs) and carries the most weight when it comes to determining your credit score
- Your address history: How long you’ve lived at your current address, and any linked addresses you’ve lived at during the past seven years, up to 10 if you’ve been declared bankrupt
- Whether you’re on the electoral roll : This helps lenders determine you are who you say you are
- Signs of fraud: Things like identity theft and card fraud can damage your credit history but you can take steps to repair it. We’ll come to those in a minute
- Credit utilisation: How much you currently owe, and how much of your available credit you’re using. If you use a high percentage of the credit available to you, it might indicate that you’re experiencing financial difficulties. It can also potentially damage your credit score
- The length of your credit history: How long you’ve had your various credit accounts
- Your credit mix: Managing a range of accounts like mortgage, personal loan and credit card, shows lenders you can handle different types of debt at once
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The way different lenders rate credit scores and decide if they’ll lend to you varies. But a good credit score with the main credit scoring agencies will usually mean a good score with the lender too.
That said, lenders don’t just base their decision on the credit score, so a good score isn’t a guarantee of approval for credit or getting a lower interest rate.
All of the agencies use a scale of excellent, good, fair, poor and very poor but the scoring ranges they use differ. With Experian, your score’s classed as good if it’s above 880 out of a possible 999. For Equifax, you need to score over 420 out of 700. With TransUnion, the target is 781 or more out of a maximum 850.
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We’ve seen what classes as a good credit score for each of the credit reference agencies, but what is seen as a bad credit score?
For Experian, a score of between 561 and 720 is classed as poor, and 0 to 560 is very poor. If Equifax hold a credit score for you, it is considered poor if it’s between 280 and 379, or very poor between 0 and 279. With TransUnion, 651 to 565 is seen as poor and 0 to 550 is in the very poor range.
Remember, as the scoring ranges differ by credit reference agency, a score that’s fair or good for one may be bad for another.
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As well as missing or making late payments, paying less than the amount set out in your credit agreement also gets recorded in your credit history and could contribute to a bad credit score.
In contrast, paying more than the minimum amount each month if repayments aren’t fixed, such as on a credit card, may help improve your credit score and reduces the interest you pay.
Another contributing factor to bad credit scores is declaring yourself bankrupt, or if you have an Individual Voluntary Arrangement (IVA) with a lender because you’ve been unable to pay back what you’ve borrowed from them.
It’s also important to note that if you’ve never taken out a loan or credit card before, that may cause difficulties too. You won’t have a credit history, which means there’s no information available credit reference agencies can use to determine how capable you are of paying back whatever you borrow.
Money and borrowing services
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Credit cards
Find out about Post Office Credit Cards and check if you're eligible without affecting your credit score
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Personal loans
Borrow £1,000 to £25,000 and pay it back over 1 to 5 years, with Post Office and Lendable
Related tools, services and guides
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When high living costs hit people’s pockets, it can be tempting to spend more on your credit cards. But it’s all too easy to slip into debt if you don’t manage your repayments.
How to apply for a credit card
Find out the steps involved in getting the right card for you, what you’ll need to apply and how to check if you’re eligible first without affecting your credit score.
Our guide to how credit cards work
Credit cards can be an easy and convenient way to spread the cost of a one-off purchase or for everyday expenses like online shopping or groceries.
What is an annual percentage rate (APR)?
The annual percentage rate (APR) is the cost of borrowing money over a year. You’ll see an APR quoted for all kinds of borrowing, including credit cards, mortgages and personal loans.