When it comes to applying for a credit, there’s a vital piece of information that impacts how lenders and banks view you: your credit score.
Understanding what makes a good and bad credit score is the first step to being accepted for credit (and at the best rates).
What exactly is a credit score?
A credit score is a three-digit number used by lenders to determine whether you qualify for credit, such as a loan or credit card.
Your credit score is based on your credit report, which is a record of your credit history and how you’ve managed your finances in the past. This allows lenders to assess your level of risk when you apply for credit.
Who calculates your credit score?
Your credit score is calculated by a credit reference agency (CRA). There are 3 CRAs in the UK – Experian, Equifax and Call Credit. At ClearScore, we show you your Equifax credit score, which ranges from 0 to 700.
Each CRA is sent information by lenders about the credit you have and how you manage it. Other information, such as public records like the electoral roll, are also sent to the CRAs and form part of your credit report.
What is a good/bad credit score?
A common misconception about credit scores is that a certain credit score will get you accepted for credit by all lenders. This is not true. Different lenders have different criteria when it comes to accepting people for credit. This means one lender might accept your credit score, while others may reject it.
Below are the Equifax score bands and how we refer to them at ClearScore:
Credit score: 0 - 279. The Equifax band for this range is 'Very poor' and on ClearScore you'll see 'Raise your game'.
Credit score: 280 - 379. The Equifax band for this range is 'Poor' and on ClearScore you'll see 'On the up'.
Credit score: 380 - 419. The Equifax band for this range is 'Fair' and on ClearScore you'll see 'On good ground'.
Credit score: 420 - 465. The Equifax band for this range is 'Good' and on ClearScore you'll see 'Looking bright'.
Credit score: 466+. The Equifax band for this range is 'Excellent' and on ClearScore you'll see 'Soaring high'.
What impacts your credit score?
There are a number of factors that impact your credit score, including:
- The length of your credit history (the longer the better)
- Your affordability, based on your earnings and your current debt
- Your payment history (including whether you’ve missed payments or have CCJs)
- Your credit utilisation ratio (how much of you’re available credit you’re using)
- How many new credit accounts you have (if you have made a lot of recent applications for credit, you are likely to be considered a greater credit risk)
- Your stability (based on length of time at your home address and whether you’re registered for the electoral roll)
What does it mean if your credit score is high?
A high credit score means lenders see you as a lower risk. Things like paying your accounts on time and in full each month mean you’re more likely to be seen as a lower risk.
Having a high credit score increases your chances of being accepted for credit. You’re also more likely to be offered the best interest rates and higher credit limits if you have a high credit score.
What does it mean if your credit score is low?
A low credit score means that you’ll be considered a higher risk to lenders. Factors like missing a payment can result in a low credit score.
Having a low credit score makes you susceptible to getting offered credit with a high interest rates or getting your application rejected all together.