Credit scores explained

A credit score is a number that shows you how likely you are to be accepted for credit. It’s based on your credit report, which is a record of how you’ve handled credit in the past.¹ Your score acts as an indication of whether you’ve got a good chance of being accepted for credit. This could be a loan, a credit card, a mortgage, or an overdraft. If you have a high credit score, you’ll have a higher chance of being accepted for lines of credit at better rates. 

You can see your credit score by registering your details with a Credit Reference Agency (CRA). There are a few free services like ClearScore or TotallyMoney. Another popular site is Experian which is free to sign up for. You should be aware that credit scores are calculated differently by different credit bureaus and websites. For instance, Experian will give you a score between 1 - 999, Equifax between 1 - 700 and TransUnion between 1 – 710. A higher score indicates a better credit rating. The scores are then grouped into tiers from very poor to very good to help companies assess whether they’d like to lend you credit.   

A good credit score will help you when it comes to applying for credit in the future. Not only could it increase the likelihood of applications being accepted, it can also mean you’re offered more at a better rate. However, it’s not only borrowing that can be affected by your score; prospective employers may check your credit rating and it could sway their decision. It can even affect your insurance rates – some companies may look at your report and price your insurance based on negative behaviours².

Looking to get a new phone/TV contract? That’s affected by your credit score as well. Your score will be checked before any new contracts are taken out and that could affect the outcome of the contract you wish to take out. If you have a bad credit history or have been refused credit in the past, you may only be offered older models of phones as they’re lower risk for the providers.³

There are a few ways in which you can improve your score.

1. Register on the electoral roll at your current address 
   This small change helps companies confirm your name and address, and that the details you’ve provided are accurate. The more information that lenders have on you, and that they can verify, the more comfortable they’ll feel about lending you money.
2. Manage your household bills 
   Paying them on time can show that you’re responsible when it comes to repayments.
3. Pay your credit card off each month
   If you have a credit card, always pay your bill off each month in order to minimise interest payments. This shows that you’re a responsible borrower but try not to use all the credit that you take out. Keeping your credit utilisation (the percentage of credit that you use from what you’ve been offered) low is a positive for companies. An example of good credit utilisation would be around 25%. As an example if you have a credit card with a limit of £1,000, only using £250 of it would be 25%⁴ utilisation.

You should also beware of things that will have a negative effect on your credit score, such as making multiple applications for credit in a short amount of time. This could indicate that you’re desperate for credit, and therefore higher risk. 

You should also look for any mistakes on your credit report, which may be bringing your score down, and get them fixed as soon as possible. Credit Reference Agencies are under a legal obligation to correct any errors on your credit record. 

If you’re a Zempler Bank customer on an Activeplus account, you could build your credit score over the coming year with our Creditbuilder tool. Creditbuilder aims to help you build your credit score over 12 months.