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Everything you need to know about your credit score

Your credit score is a vital piece of information banks and other companies use to make decisions about you. Knowing how it works and how you can manage yours will positively affect your finances in the long run.

Joanne Rushton
· 14 min read

Borrowing money might seem strangely easy in the age of the internet. Many processes go on in the background, though, including your lender checking your credit score.

You'll probably have had the script read out to you from a bank, lender, or insurance company telling you about sharing data and credit scores. As uninteresting as it can feel, what's happening can have a significant impact on your life.

It’s unlikely you’ve lived your whole life without having a credit check performed on you, but how much do you understand about the process? Do credit checks even matter? The help you understand your credit score better, we’re going to cover:

  • What your credit score and credit report are.
  • Who holds the information about your credit score.
  • The different types of credit checks and what they mean.
  • What you can do to improve or maintain your credit score.

What is a credit score?

Your credit score is based on your financial history and track record of keeping up with your financial commitments. It’s a three-digit number that’s calculated to tell banks, lenders, and other companies who might lend you money how likely you might be to pay back what you borrow.

Your credit score and credit report are held by companies independent of financial institutions. Companies that use these credit reference agencies' services also feed in data about your borrowing and whether you're managing your debts well.

It might feel a little intrusive, but it’s vital information for banks and others to make sound decisions. People who aren’t likely to honour debts won’t cost banks lots of money, and you can use your good history with one bank to get a loan elsewhere, for example.

What information is on my credit file?

If you’ve not looked at a credit report before, you might be surprised at what’s on there. Data held about you includes:

  • Loans, credit cards, and other credit agreements you’ve taken.
  • Records of any missed or late payments in the last six years.
  • Lines of credit that are open to you and unused.
  • Any “hard” credit checks done on you – more on this later.
  • Which address you’re registered to vote at.
  • Whether you’ve had any County Court Judgements against you in the last six years.

All of these bits of information are then formulated into a score. Companies can access your score and get a complete picture of your financial history, too.

Who are the credit reference agencies in the UK?

In the UK, three credit reference agencies hold your data and work with banks and other companies:

  • Equifax is the most used credit reference agency in the UK. Equifax offers a 30-day free trial that lets you access your full credit report – be sure to cancel before the trial ends to avoid ongoing fees. You can also signup for ClearScore, which is 100% free and uses data from Equifax.
  • Experian gathers, analyses, combines, and processes data that helps businesses understand credit risk. You can access your credit report for free with the company and see your score and all your data.
  • TransUnion is a recent entrant into the UK credit referencing market – it bought out CallCredit 2018. You can get a one-off snapshot of your credit report from them or sign up for Credit Karma for unlimited access and lending recommendations.

These companies don’t make decisions about lending – only the place where you’re applying does that.

What is a credit search?

A credit search occurs when a financial or other company needs to know how reliable you might be when borrowing money. Credit searches are typically performed are when you are:

  • Opening a bank account, usually to check if you’ve been bankrupt.
  • Taking a loan or mortgage, to understand how much money you already owe and if you pay debts on time.
  • Starting a mobile phone contract, so they know if you’ve defaulted on payments before.
  • Setting up monthly payments for insurance to check you're a good payer.
  • Renting a property to check you’re not at high risk of missing or making late payments.
  • When starting some jobs, if you’re working with money.

You have every right to decline a credit search, but you probably won’t be able to get the service you're looking for without it. You may be able to ask for a soft rather than hard search to be performed, though.

Hard credit search vs soft credit search

There are two main types of credit search in the UK, hard and soft searches. There are two main differences: the amount of information the searcher gets and how the search is recorded.

In terms of information, a soft search provides limited information like your address and date of birth. Think of it like a background check where they’re checking that your basic information is all in order. It’s the type of check an employer or rental agency might do.

On the flip side, a hard search gives the person requesting information full access to your financial history for the last six years. They can see your borrowing, payments, and defaults in detail.

Soft searches are noted by credit references agencies but won't have any effect on your credit score. However, hard searches are recorded and can be used by companies as a part of their decision-making process.

What are the consequences of a credit search?

Once the referencing companies share your information, it's down to the searcher what they do with it. There are three likely outcomes of a credit search:

  1. Your application is accepted when they’re happy with your credit history.
  2. You’re offered a higher rate or different terms because your history isn’t quite what they’d like to see.
  3. You get declined for the product you want, and you need to go looking elsewhere.

Remember that hard searches are recorded. If you get declined and go elsewhere, they'll see that you've applied to other places to borrow money. The next company you apply with won't know you were declined, but many searches aren't a good look, which we’ll explain more in a moment.

How can I improve my credit score?

Your credit score can affect lots of things in your life, as we’ve seen. You might want to remortgage your house, take a loan to go on a holiday of a lifetime, or sign a mobile phone contract to get the latest device.

Now we know all about what your credit score is, let’s look at what you can do to improve it and have the best chance of getting the borrowing you need at the best rate possible.

How to increase a credit score

A low credit score isn't the end of the world. You can do lots of things to fix a poor credit file, but it will take time, effort, and patience.

First, you need to look at your credit file and see where the problems lie. You have a legal right to access your report for free; contact the three companies we looked at earlier to get your details.

Limited or poor credit history

Not having much history can give you a low credit score as much as adverse history. Take a simple mobile phone contract or a credit card that you pay in full each month to start building your credit history.

There are credit card companies that specialise in cards for people with poor credit. Consider taking out a card, paying for a grocery shop on it once a month, and settling the bill by direct debit each time. You’ll soon have a positive payment history on your file.

Wrong personal data

The information about you as a person can be as crucial as your debt history. Make sure the address on your credit file matches where you live. Registering to vote at your address can also strengthen your score.

Lots of applications for credit

Making repeated applications for credit is often interpreted as a sign of financial distress. Not only will several searches in a short space of time reduce your credit score, but it is also potentially a strong red flag to lenders.

A good rule of thumb is to avoid applying for credit more than twice in any six-month period.

If you apply for a loan, note your credit score might drop slightly, but will recover once you’re making regular repayments.

Financial associations on your credit file

When you apply for credit in joint names, like a personal loan or mortgage, you become financially linked with that person. If they develop problems on their credit file, it can negatively affect you, even if you've never so much as returned a library book late.

If your file shows you’re financially associated with someone and it’s causing you problems, consider changing your ties. Settle any shared debts and open sole bank accounts and close joint ones. Prove you’re no longer linked with a person to the credit reference agencies, and they'll unlink you.

Close unused credit

It was seen as a kind of status symbol to have a large credit limit on your credit card in years gone by. You'd never dream of using it, but it was nice to know that your bank trusted you with so much money.

However, it's not a great reflection on your credit file. Having a couple of credit cards with £5k limits and applying for a £10k loan means you've got a potential debt of £20k, and banks won't look on it favourably. Close or reduce limits on credit cards and overdrafts that you don't use.

Lots of small debts

Say you have a £500 overdraft, a credit card with a £2k limit, and a loan for £3k. It might not feel like you're in dire financial straits, but it all adds up. Consider whether you should use your savings to pay off your small debts to boost your credit score if you’re looking to get a mortgage or a sizeable loan soon.

Incorrect information affecting your credit score

Mistakes happen. Some mistakes can have a significant effect on your life and your potential to borrow money. You have the right to get any errors corrected on your credit file. This is usually done between you and the company that reported the inaccurate data on your credit report.

You can fix an error made by a company; however, a mistake on your part, no matter how out of character, can't be changed. Here are some examples of what can and can't be fixed:

Can be fixed on your credit fileCan’t be fixed on your credit file
You missed a phone bill because the company didn’t claim the direct debit properlyYour employer paid you late so you paid your mortgage late
A standing order got bounced during an account switch that wasn’t your errorYou accidentally cancelled a direct debit on your online banking service
An account is showing as active when you’ve settled the debt alreadyA hospital trip meant you forgot to pay a bill on time

What’s a notice of correction on a credit file?

When you can't fix something on your credit file, you can still add a "notice of correction". This is a note you add through the credit reference agency to explain a problem on your credit file.

This notice is a 200-word note on your file that might tell a potential lender about a personal illness or death in the family that temporarily knocked your payment history off track. There are no guarantees lenders will take it into account, but it can help in some cases.

Understanding your credit score

Having a high credit score and a good credit report can be very useful. It’ll mean that when you need to borrow money for some luxuries, home building, or in an emergency, that you have financial options.

You have every right to know what’s on your credit file and have the company who made a mistake fix it. It can take a little time to fix problems and have the reports updated, but it can be worth it.

Having financial problems and a low credit score isn't the end of the world. You can start to build or rebuild your credit report and credit score over time. Have patience and get disciplined with your money, and you'll reap the rewards in the long term.

Joanne Rushton

Joanne Rushton

After working at the Co-operative Bank for five years, Joanne left to discover the world before returning to work helping customers understand their finances and get the most out of the banking. A career shift came after two more years, and she found herself working as a teacher in Hanoi, Vietnam before turning to her childhood of passion for writing.
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