WHAT IS A CREDIT SCORE?

Your UK Credit Rating is the single most important factor in deciding whether or not you get approved for loans, mortgage, credit cards and other forms of credit, and it is based on a Credit Score,

Credit Scoring is a technique used by lending companies to help them predict the risk of lending money to you.

Every lender will have a range of values, say a scale of 0 to 1000, (or maybe 0 to 500), representing the minimum and maximum scores attainable in their scoring system. Note that this scale of a minimum and a maximum could be different for each lender.

If we take the scoring scale of the first example any credit score would have to be between 1 and 1000. On average, using this scoring scale, most people might have a score between 500 and 800.

Again using the same example, if your score were towards the lower value (500) or below then you would have a low or poor credit rating. If your score were nearer the higher value (800) or above then you would have a high or good credit rating.

A credit rating will often be one of 5 grades representing Very Poor, Poor, Fair, Good and Excellent.

Do I have a Single Score or Rating that all Lenders use?

No, a credit score is not a fixed value and your potential lender will calculate a new score every time you make an application for credit such as a mortgage, credit card, hire purchase, bank loan or current account etc.

Lenders calculate a credit score from information on your application form and your credit report. 

Unfortunately, a lender will never tell you the exact score they calculated for you because the complex formula each lender uses to perform the calculation is their own commercial secret.

If your application fails because of the credit score they have calculated, a lender may be prepared to give you some sort of indication as to why, but they will always be reticent to go into any detail about your credit score and how it was determined.

Each lender will have a different formula and will therefore calculate your score in a different way.

This means that, even if the details on your credit report are exactly the same when the lenders do their calculations, your credit rating from each lender may be different. This is one reason why some lenders will accept a credit application from you while others will not.

Even if the resulting credit rating is the same. each lender may have a different way of interpreting the results and therefore may make different decisions.

However if your credit is very good or very bad then lenders are more likely to make a decision that has the same effect on your application. It is in the area between where lender differences will have a bigger impact.

The score a lender calculates could also lead to a different decision depending on which Credit Reference Agency provides your Credit Report to them. This is because the information held on you by each agency could very easily be different.

For this reason alone you should personally check your Credit Report at each agency because one report may have detrimental information on it, which could lower your credit score and cause an application to fail if the lender were to use that credit report. 

How do I find out what my Credit Rating might be

You can get a credit score and credit rating with a copy of your credit report from the Credit Reference Agencies.

Each agency will use their own independent formula to calculate a score and their score ranges will be different. Thus your score at each agency will be different, but your credit ratings should be similar 

The scoring scales used by each agency are currently as follows:

The Credit Rating they give you will be a fairly accurate estimate of what a lender might determine for you. Although not exactly the same as a lender’s rating it will be sufficiently indicative, so you should be able to tell if it is good or bad or borderline.

Your credit score is so important when applying to make a major financial commitment such as a home loan or mortgage that you should always know what it is before applying.

Having a good credit rating is essential to ensure that a financial company is prepared to lend you money. Your credit score is an estimate of how much of a credit risk you pose to the company and a prediction therefore of the likelihood that you will fail to make your repayments on a loan or credit card in the future.

The better the credit rating then the lower the risk that you will get into financial problems. 

Also a better rating will mean that you could be approved for larger loan amounts and at a more favourable rate than someone with a poor score.

Credit Score Examples

Because there are so many different lenders and therefore just as many formulas it is very difficult to determine with any certainty how any actual lending decision will be made for a particular score or credit rating

The table below may give you some idea or best guess of how a credit rating might be interpreted. It uses the same score range example used above (1 to1000).

Because there are so many contributing factors involved such as the size of a loan, the rate and other borrowing terms, only the lender can really determine what kind of a risk they are looking at.

The comments in the table therefore should not be taken as accurate in any way as they are purely for illustrative purposes and can in no way represent the decision of any lender.

Note also that the same lender might give a different decision dependent on the type of product you apply for, so that you may be approved for a credit card but not for a mortgage, because the risk to the lender for a very large loan like a mortgage is much higher.