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Five things you should know about how your credit score is calculated

Baffled by your credit rating? Here’s the lowdown on how it’s worked out

By Esther Shaw

Published: 22 October 2021

Man looking at credit score on phone

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Having a decent credit score is crucial, as this rating determines whether or not you’ll get accepted for a mortgage, personal loan, credit card – or even a mobile phone contract.

If you do get approved, your score will also have an impact on the rate you get offered, and the terms of any promotional deal.

But how exactly is your credit rating calculated?

1. Credit agencies collate information from the past six years

Credit reference agencies will bring together details about your financial history from the past six years, to work out your score.

This will include your name, current address and previous addresses, and whether or not you’re registered on the electoral roll.

It will also include data from lenders you’ve had credit agreements with in the past six years, and whether you have any missed or late payments.

In addition, agencies will hold information from the courts, such as whether you’ve had a default, County Court Judgement (CCJ), Individual Voluntary Arrangement (IVA), or bankruptcy.

Further, they will have details of anyone you’ve been ‘financially associated’ with, via products such as a joint account or joint mortgage.

There are three main credit reference agencies: TransUnion, Equifax and Experian.

(MoneySuperMarket uses data from credit reference agency, TransUnion, to compile your score and report via Credit Monitor).

2. Credit agencies will do their own calculations

In addition to the information collated, agencies will carry out their own credit-scoring process.

The aim is to provide a real-time snapshot of your creditworthiness for lenders.

A lender will look at this information when deciding whether to lend – and at what rate.

They will want to see evidence that someone is a reliable borrower, and use their score from the credit reference agency as part of their assessment.

Lenders will view someone with a high score as less of a risk than someone with a ‘poor’ or ‘bad’ score.

They will be more willing to lend to someone who is low-risk, and to offer them the top rates and preferential terms. 

3. Points will be added for responsible borrowing

Points will be added to your score if you can demonstrate that you can borrow money responsibly.

This means showing that you can stay within your credit limits and make payments on time.

Points will also be added if you register to vote.

By the same token, any missed payments or breaches of your credit limit will harm your score. Having a ‘financial association,’ such as a joint account, with someone who has a bad credit score, could also mean points get deducted.

4. There is no universal scoring system

While the three agencies use the same criteria to assess you, they each have their own scoring system.

This means that your credit rating will vary from one agency to the next.

With TransUnion, you will get a score between 0 and 710. Experian will give you a rating from 0-999, while Equifax will rate you on a scale from 0-1,000.

As the scoring system differs from one agency to the next, you cannot compare your rating between agencies.

That said, the simple rule is this: the higher your score, the better.

With MoneySuperMarket’s Credit Monitor service, from TransUnion, anything between 604 and 627 is classed as ‘good,’ and between 628 and 710 is classed as ‘excellent.’

5. Your score can go up and down

Your credit rating is not fixed and can go up and down, depending on how you manage credit payments.

As your score doesn’t stay the same, you need to keep checking your report to ensure that all the information held is accurate and up-to-date. A mistake on your report could cost you precious points, so you need to get any errors corrected.

Equally, if you had joint accounts or credit cards with a partner in the past, but that person is now an ex, you can apply to get a ‘Notice of Disassociation’ added to your report. This will alert lenders to the fact you’re no longer financially linked. This can help boost your score. Read more here.

As your rating can change, the key is to remain diligent about taking all the steps you can to keep your score as high as possible. 

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