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What Is a Credit Score?
A credit score is a measure that indicates how reliable you are at borrowing and repaying money. Scores are generated by credit reference agencies and can be accessed by lenders, e.g. banks, to assist them in their decisions on credit applications. However, the common misconception is that the credit scores provided by credit reference agencies purely determine the outcome of an application; they don’t.
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What Is a Credit Score?
A credit score is an indication of an individual’s reliability surrounding debt. In other words, it is how worthy you are of borrowing money. Credit reference agencies hold information about your borrowing history, which is compiled into a document known as a credit report. This report is used to generate a score – your credit score.
- Credit Report
This includes information about your financial history and other relevant data, e.g. personal details, whether you have made previous repayments on time, current loans and outstanding debt etc.
- Credit Score
A number calculated based on the information in the credit report. It’s like an overall grade.
Credit Reference Agencies
Experian, Equifax and TransUnion are the three main credit reference agencies. They are independent organisations that hold relevant data on you that lenders can use to inform their decision on credit applications.
You do not get a single, universal credit score. Instead, each credit reference agency will use its own data, scoring system and scale to produce a score. Although scored differently, one rule remains the same, the higher your score, the better.
Equifax: 0-1,000
TransUnion: 0-710
Experian: 0-999
You can, and should, check the files that credit reference agencies hold on you to ensure everything is correct before submitting an application. It’s best to check them all, but if you know which agency your lender uses for their data, check that one first.
How Lenders Use Your Information
Now, whilst credit reference agencies give you a score, it isn’t down to them as to whether your application is accepted, it’s down to the lender. Lenders will use data from credit reference agencies, alongside their own data, to make their decision. Unfortunately, the process for making their decision is secret and will vary between lenders.
Focus On What's Important
The common misconception is that the credit score and information provided by the credit reference agency determines whether your application will be accepted. While the credit score can be used as a rough guide for how lenders might view your data, it is not the only factor used to determine whether your application will be successful. Lenders will have their own criteria to make a decision, and lenders won’t inform credit reference agencies on how their information may have impacted a decision.
If anything, you should focus on checking whether the files that credit reference agencies have on you are correct and identifying the reasons behind any large swings in your score. If an application gets rejected, try to understand why before completing another application.
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