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Understanding Credit Scores

Understanding your credit score is extremely important if you’re looking to take on any kind of debt, whether that’s a mortgage, personal loan, or even a credit card. Here at Consolidation Expert, we’ve put together this comprehensive guide to help you understand your credit score.

A green laptop with a credit score.

What is a Credit Score?

A credit score is a three-digit number that represents your creditworthiness. It’s a numerical summary derived from your credit history, including your payment history, the total amount of debt you have, and the length of your credit history. Understanding credit scores is crucial as they play a significant role in your financial life.

Credit scores are used by lenders, such as banks and credit card companies, to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. They are used to determine who qualifies for a loan, at what interest rate, and what credit limits. Lenders use credit scores to determine who is likely to repay a loan or credit card debt.

A man holding a credit card with his foot on a credit score dial.

Understanding Credit Score Ranges

Credit scores are assessed using varying scales dependent on the Credit Bureau. Experian use a scare of 0 to 999, Equifax use 0 to 1000, and the TransUnion scale is 0-710 . A credit score above 881 on Experian is regarded as favourable, indicating a good score. Similarly, a score above 530 on Equifax is also considered good.

Here’s a basic breakdown of what your credit score means on Experian:

  • Excellent (961 - 999): An excellent credit score means lenders see you as the lowest risk. You'll likely get approved for credit with the best terms and rates, though there are no guarantees.
  • Good (881 - 960): A good credit score means lenders see you as reliable. You're likely to get approved for credit with good terms and rates, but not the best available.
  • Fair (721 - 880): A fair credit score means lenders see you as dependable. You'll likely get approved for credit, but not with the best rates and possibly with only low credit limits.
  • Poor (561 - 720): A poor credit score means lenders see lending to you as higher risk While you might be approved for credit, you will likely have high interest rates and lower limits.
  • Very Poor (0 - 560): A very poor credit score means lenders see you as a significant risk and you will likely have trouble getting approved for most credit.

TransUnion (formerly known as Callcredit) in the UK uses a credit score range from 0 to 710. Here’s how they categorise the scores:

  • Very Poor (0-550): A score in this range suggests that you have had significant credit-related issues in the past, such as bankruptcy, County Court Judgments (CCJs), or multiple missed payments. It's likely that you'll find it difficult to get approved for credit, and if you do, the interest rates will likely be very high.
  • Poor (551-565): A score in this range suggests that you've had some credit-related issues in the past, such as late payments or defaults. You may find it more challenging to get approved for credit, and the interest rates offered may be higher than average.
  • Fair (566-603): A score in this range suggests that you've had a mix of positive and negative information on your credit report. You may have had some late payments but also have current accounts in good standing. You may be able to get approved for credit, but not always at the most competitive rates and will likely have low credit limits.
  • Good (604-627): A score in this range suggests that you've generally handled your credit responsibly but may have had a few minor issues. You're likely to get approved for most types of credit, often at competitive (but not necessarily the best) rates.
  • Excellent (628-710): A score in this range suggests that you've consistently handled your credit responsibly. You're likely to get approved for most types of credit, often at the best available rates.

Factors that Affect Your Credit Score

Several factors can affect your credit score. The most significant is your payment history — whether you pay your bills on time. Other important factors include the amount of debt you have, the length of your credit history, and the types of credit you use.

Recent applications for credit can also impact your score. If you apply for too many new accounts in a short period, it can negatively affect your score. This is because lenders may think you’re trying to take on too much debt.

A woman holding a credit score and looking at expenses.

How to Improve Your Credit Score

Improving your credit score is a gradual process, but it’s worth the effort. Here are some steps you can take to improve your credit score and keep it healthy, recommended by Experian:

Pay Your Bills on Time:

Late payments can have a significant negative impact on your score.

Reduce Your Debt:

Lowering your credit card balances and paying off debt can help improve your credit utilisation rate, which can help improve your score.

Don't Apply for Too Much New Credit:

Each time you apply for credit, it can cause a small dip in your credit score that lasts a year.

Checking Your Credit Score

It’s important to check your credit score regularly. Many financial institutions, credit card issuers and some non-profit organisations offer free credit reports. You can also purchase your credit score from credit reference agencies like Experian, TransUnion, and Equifax.

The Impact of a Low Credit Score

A low credit score, according to Experian, can make it more challenging to qualify for credit and may result in higher interest rates on loans and credit cards. It can also affect other areas of your life, such as your ability to rent a home, or even open a bank account.

Understanding your credit score and how it’s calculated can help you make informed decisions that will improve your score over time. Remember, the higher your credit score, the more opportunities you’ll have to access better financial products and services.

Credit utilisation is another crucial factor in your credit score calculation. It refers to the percentage of your available credit that you’re currently using. A lower credit utilisation rate is better for your credit score. To improve this factor, try to keep your balances low and avoid maxing out your credit cards.

A woman looking at a poor credit score.

Regularly Checking Your Credit Score

Regularly checking your credit score is an essential part of managing your financial health. It allows you to understand where you stand and how your financial behaviours affect your score. Regular checks also help you spot any errors on your credit report that could be unfairly dragging your score down.

The Importance of Credit Mix

The types of credit you have also play a role in your credit score. A mix of credit, such as credit cards, retail accounts, instalment loans, car loans, and mortgage loans, is helpful for creditors as they can see how well you manage different types of credit. This doesn’t mean you should go out and get one of each, but it’s good to know that having a mix of different types of credit can be beneficial to your credit score.

The Long-Term Benefits of a Good Credit Score

A good credit score can open up a world of opportunities. Not only can it make it easier to get approved for credit, but it can also get you the best interest rates. This can save you a lot of money over time. A good credit score can also make it easier to rent a home, get a mobile phone plan, and acquire car finance.

The Journey to Improving Your Credit Score

Improving your credit score takes time, but every step you take towards using credit responsibly can help. Even if you’ve made financial mistakes in the past, it’s never too late to start improving your credit habits. With patience, persistence, and responsible credit habits, you can improve your credit score and create a stronger financial future.

Remember, understanding your credit score is the first step towards improving it. At Consolidation Expert, we may be able to help you on your journey towards better credit. If you’re looking to consolidate your debts with good or bad credit, we may be able to help.

Representative 14.8% APR

We are a broker, not a lender.

Representative Example: Borrowing £15,000 over 60 months, repaying £355.28 per month, total repayable £21,316.57.

Total cost of credit £6,316.57.

Interest rate 14.8% (variable).

The lenders on our panel offer loans for 12-360 months, with rates from 4.7% APR to 42.6% APR.

The Representative Example is based on all loans paid out by lenders between 1st Jan 2022 and 31st Dec 2022.

Expert Explains How Soft and Hard Credit Checks Affect Credit Scores.

Financial Expert Andrew Hagger.

Hard credit checks occur when a lender or financial institution examines your credit report to determine your suitability for credit. These checks can impact your credit score, and multiple hard credit checks in a short period of time can indicate to lenders that you are a high-risk borrower. On the other hand, soft credit checks do not impact your credit score and typically occur when you check your own credit score or when a potential employer or landlord does a background check. Understanding the difference between hard and soft credit checks can help you to make informed decisions about your credit usage and financial planning.

— Andrew Hagger, at Consolidation Expert.

Understanding Your Credit Score FAQs:

A good credit score is a numerical representation of your creditworthiness, indicating that you are a low-risk borrower. A higher credit score generally means you have shown responsible behaviour with your credit accounts and are more likely to get better terms and lower interest rates on loans and credit cards. It is important to maintain a good credit score as it demonstrates your financial reliability to potential lenders, landlords, and in some circumstances even employers.

A credit score is a number that represents your creditworthiness, based on your credit history. It is used by lenders and other institutions to assess your risk as a borrower when you apply for loans, credit cards, or other credit accounts. A higher credit score indicates a lower risk associated with lending to you, while a lower score reflects higher risk.

Credit scores are calculated using information from your credit reports, which are maintained by the three credit bureaus in the UK: Experian, TransUnion, and Equifax. Your credit score is based on several factors, including your payment history, the amount of debt you owe, the length of your credit history, the mix of different credit types, and your recent credit applications. Each credit scoring model may use different factors and weigh them differently when calculating your score.

There are three main credit bureaus that gather and maintain information about your credit accounts: Experian, TransUnion, and Equifax. Each of these bureaus collects data from various sources, such as banks and credit card companies, and creates your credit report. While they all follow similar practices in collecting and reporting data, there can be slight differences in the information they receive and how your credit score is calculated, depending on which credit bureau is used.

You can access your credit score for free through various online platforms, such as. There are also other websites and apps, such as Credit Karma and Credit Sesame, that provide free credit scores and credit report information.

Several factors can impact your credit score, including your payment history, credit utilisation, the length of your credit history, the types of credit you have, and recent credit applications. Late or missed payments, high credit card balances, applying for multiple credit accounts in a short period, closing credit accounts, or having a limited mix of credit can all negatively impact your score. On the other hand, making on-time payments, keeping low balances, and having a diverse mix of credit can improve your score.

The average age of a person’s credit accounts is a factor that is used to calculate your credit score, and it shows the length of your credit history. Generally, a longer credit history is viewed more favourably by lenders, as it provides more evidence of responsible credit usage. The average age of your accounts is determined by dividing the sum of the ages of all your accounts by the number of accounts you have, and people with a longer average age usually have better credit scores.

The time it takes to improve your credit score varies depending on your individual circumstances and financial history. Some factors that can impact the time it takes include the cause of your low score, your financial behaviour, and the actions you take to improve your credit. Building a good credit score usually takes time and consistent effort, as factors like on-time payments and a long credit history play a significant role in your credit score.

Lenders use your credit score to determine your creditworthiness when you apply for loans, credit cards, or other credit accounts. A higher credit score typically indicates a lower risk associated with lending to you, which means you are more likely to be approved for credit and receive favourable terms, such as lower interest rates. Lenders may also use your credit score to determine the amount of credit they are willing to extend to you and set the terms and conditions of the credit agreement.