Why your credit score is so important
5 min read
Your credit score is a measure of how lenders think you're doing with your finances. They use it to decide whether they should lend you money, based on how likely you are to pay them back.
Put simply - the better your credit score, the easier it is to borrow money.
And ‘borrowing money’ doesn’t just mean credit cards and loans. It includes getting a mortgage on a house, getting finance on a car, or even a mobile phone contract.
But what is a good credit score? And how do you get one?
How Are Credit Scores Calculated?
Think of your credit score like this - how comfortable would you feel lending money to someone if you knew they had a history of not paying people back? Or if they asked people to borrow money all the time? You’d probably feel nervous, right?
Lenders (like banks and credit card companies) are in the same position. That's why they use your credit history and credit score to decide whether or not to lend you money.
Here are some of the factors that affect your credit score:
- Your payment history, including missed payments and payments you’ve made on time
- Your total credit limit and how much you owe (on all credit cards and loans)
- How much of your available credit you’ve used (sometimes called ‘credit utilisation’)
- If you’re on the electoral register
Your payment history and how much you borrow are the biggest factors. So by keeping on top of your payments and managing your credit well, you can have the biggest impact on your credit score.
What Is A Good Credit Score?
The higher your credit score is, the more likely you are to get a better deal.
There are three main credit bureaus - Equifax, Experian and TransUnion. Each of them will give you a different credit score. Our credit score tool, CreditWiseopens in a new tab, uses TransUnionopens in a new tab to show your credit score and report. Here’s how TransUnion rank their scores:
- 628 and above are considered Excellent
- Between 604-627 are considered Good
- Between 566-603 are considered Fair
- 565 and below are considered Needs Work
To find out your score, head to CreditWiseopens in a new tab. You can see your full credit report (which includes your payment history and the status of your credit account). Plus, you can use the Score Simulator tool to see how taking out credit will affect your credit score.
How Do I Improve My Credit Score?
If you want to boost your credit score, here's a few good habits that could help:
Stay within your credit limits - This shows that you’re managing your money well and helps you avoid any extra fees. Going over your credit limit could harm your credit score.
Make your payments on time - Your payment history is a big part of your credit score. Make payments on time and your score could increase. But miss payments and your score could go down. Setting up a Direct Debit is a great way to make sure you never forget a payment.
Use your credit card for everyday spends - Lenders want to see that you can manage a credit card. Using a credit card for smaller, everyday spends can help you show this. Plus, if you pay your balance off in full each month, you won’t have to pay any interest. Follow this advice and you could build your credit score with our credit builder card.opens in a new tab
Don't apply for credit too often - Every time you apply for credit, it shows up on your credit report. Applying too many times in a short period of time can make you look risky to lenders. That’s why it’s always better to use an eligibility checker - like QuickCheckopens in a new tab - to see if you’ll be accepted before you apply.
Keep on top of your finances - Your credit score isn’t just based on credit cards and loans. You need to keep on top of your other bills like phone contracts, energy bills and other regular payments too.
Check your score regularly - This won’t have a direct impact on your score but it’s useful to keep an eye on it so you know if something’s changed.
Make sure you’re registered to vote - Lenders use the electoral register to check your name and address, so it’s important to make sure you’re registered to voteopens in a new tab.
Why Do I Have A Bad Credit Score?
There are many reasons your credit score might not be as high as you’d like, such as missing payments, declaring bankruptcy, and being the subject of a CCJ (County Court Judgement). Then there’s the smaller stuff, like only paying the minimum each month or having no credit history.
You should also keep in mind that your credit score could drop slightly when you apply for credit. So it’s important that you don’t apply for too much credit in a short space of time.
That’s why we give you a 100% guaranteed yes or no before you applyopens in a new tab. So you’ll get an answer, without affecting your credit score.