What’s a credit score and how to improve it

by James Daley – Money expert and Founder of Fairer Finance
Last reviewed 17^th September 2024
7 min read

A credit score is a shortcut that lenders, landlords and other businesses use to decide how likely you are to pay your bills, or keep up your debt repayments. They use it when deciding whether they want to give you a loan, or rent a property to you.

Credit scores are made up of using all sorts of information about you – which is stored on your credit file. There are three main agencies in the UK which have licences to compile credit files – these are Experian, Equifax and TransUnion (which used to be known as Call Credit). These are called credit reference agencies. A fourth smaller agency, Crediva, was also given a licence in 2017.

The most important part of a credit score is the record of how good you are at making payments. This isn’t just payments for loans or credit, it also includes an assessment of how good you are at paying certain bills – like your phone and utility bills.

 

Who decides what my credit score is?

Credit scores are an analysis of all the information on your credit file. Each of the credit reference agencies has their own way of calculating a credit score and these will differ by provider. They’re only an indication of what shape your credit file is in – and the actual number or score is really just a way to help you understand how good your credit rating is.

Lenders who are assessing you for credit will be more likely to take the information from your credit file and combine it with their own data to make a decision. They’re unlikely to rely simply on the credit score that each agency gives you.

As well as the four official credit reference agencies, there are also a number of other companies who aggregate credit scoring information. Clear Score, for example, aggregates information from your Equifax credit file and uses it to create your credit report and score.

How are credit scores used?

Credit scores are most often used by lenders when deciding whether to lend you money – and at what rate. But they’re also used by phone companies when you take out a monthly contract, as well as by some landlords, when they’re deciding whether they want to accept you as a tenant.

Keeping your credit record in good shape increases your options. It gives you access to a wider set of loans and credit – and increases the chances of you being accepted as a tenant, or given a monthly contract for your phone.

If you are applying for credit, a good credit score will also give you access to the best rates. Most lenders set interest rates based on the creditworthiness of the person applying for the loan. The rate that is advertised only needs to be offered to a minimum of 51% of people applying. If you have a poor credit score, they may accept your application but offer you a higher interest rate.

Five ways to improve your credit score

Some of the steps you need to take to improve your credit score are common sense – like keeping up to date with all our payments and financial commitments. But others aren’t as obvious. Here’s five things you can do to improve your credit score.

• Pay on time. The most important thing you can do, to ensure you have a good credit score, is to pay all your bills and debt repayments on time. The longer track record you have at making repayments on time, the more responsible you’re going to appear to a lender.
• Keep your debts in control. As well as making your payments on time, it’s also important to make sure that you don’t have too much debt. It’s ok to have a few different loans and credit cards – but if these look excessive in relation to your income, that’s going to take a toll on your credit score. Another key thing that lenders look for is that you’re not using too much of your available credit limit. So if you’ve got three credit cards with a combined limit of £20,000 – you should aim to keep your total balances across those cards at less than 50% of the available credit, and ideally, around 25%.
• Keep your details up to date. One important step to take is to always make sure you’re registered on the electoral roll where you’re living. This means that you’ll be registered to vote in your local area. You can register on your local Council’s website, or you can use the central government website gov.uk/register-to-vote. You should also make sure that you keep the details on any accounts you have up to date. So if you’re moving, make sure your bank and phone provider know your new address.
• Be careful about joint accounts. If you’re in a flat share and decide to put the names of your housemates on your bills – or you’re in a relationship and decide to open a joint account with your partner – you may be inadvertently linking your credit score to theirs. If you do go down the route of putting multiple names on bills and accounts, then make sure that you check your credit record if you go your separate ways – as you may need to contact the credit reference agencies to formally remove any link between you and your old housemates or partners.
• Watch out for fraud. The world of fraud gets ever more sophisticated and there are now many stories of people having their identity stolen and their credit score damaged as a result. If fraudsters can get enough information about you, they can assume your identity and open up credit agreements that you never agreed to. They then don’t make the payments, and leave you to pay the cost in terms of damage to your credit file. There’s more on how to check and repair your credit record below.

It’s easy to assume that not borrowing at all will give you the best credit score. However, lenders like to be able to see some evidence that you’re responsible with your debts and have built up a track record at making repayments on time. If you’re struggling to get accepted for credit because you don’t have enough experience on your credit file, you could look at taking out a creditbuilder credit card, which allows you to borrow small amounts of money, with a view to demonstrating you’re a responsible borrower.

How do I know which credit report my lender will look at?

Lenders can choose to look at your credit files from any of the four credit reference agencies. Most large lenders will have agreements with more than one agency – but it’s unlikely you’ll be able to find out who this is.

So it’s important to make sure that your credit file is correct on all four credit reference agency sites.

Credit reference agencies used to charge people to see their credit files – but now you can see them for free.

You can see your Experian credit report for free by registering on their site (www.experian.co.uk). Initially you can only see your credit score, and to see your free report, you’ll need to wait for a code to be sent to you. Alternatively, you can sign up to a paid service to see your file immediately.

For Equifax, you can also see your report for free on their site – but they also have a subscription service and will start to charge you after the first month of access. If you want to keep tabs on your Equifax report for free, you can use Clear Score – which is free to use and has a lot of information and advice for no cost at all.

The best way to check your TransUnion file is to sign up to Credit Karma – another free service with lots of information and tips at no cost.

As well as giving you access to your credit record information, these sites will also let you know which cards and loans you’re most likely to be accepted for.

Crediva does not provide an online service to allow you to see your report. However, you can order a basic report (known as your statutory credit report) from them for free by writing to them. Alternatively, you can see information from your Crediva file through a site called checkmyfile.com – which pulls together all your credit reports in one place. However, there is a fee for this service after a free 30 day trial.

What if I see an error on my credit file?

Correcting errors on your credit file is not as easy as it should be. If a missed payment is registered in error, you need to go back to the lender or company that made the log on your file and get them to correct it.

You can also contact the credit reference agencies to let them know about the error, and you can also leave notes on your credit file to explain that there is a mistake. This means that if you’re applying for credit before the mistake is rectified, lenders can at least see that you are challenging the record and dispute the missed payment.

You can also leave notices of explanation on your credit file. For example, if you missed a few payments after you were made redundant, you could add a note to your file explaining what happened and providing some more context for lenders who are deciding whether to offer you a loan.

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