What is a credit score?

A credit score is a number that lenders assign to individuals based on their credit report from credit reference agencies. The score is determined by how likely the individual is to repay a loan on time.
Lenders, such as banks, subscribe to one or more of the three main credit reference agencies in the UK: Equifax, Experian, TransUnion, and Crediva. Lenders use the credit score to assess an individual’s creditworthiness and determine how much they will be eligible to borrow and at what interest rate
If you are a sole trader or partnership looking for finance, your personal credit history and that of your partners will be checked. A poor credit history may make it difficult to obtain financing, especially from banks that have tightened their lending policies since the financial crisis.

The factors that affect your credit score include:

  • The amount of debt you currently have
  • The number of late payments (if any)
  • The age of your accounts
  • The types of accounts you have

Your credit score can be broken down into five categories:

  • Very poor
  • Poor
  • Fair
  • Good
  • Excellent
The specific criteria for each category vary depending on the credit reference agency.

How to improve your credit score.

Lenders are not required to reveal their credit score or the minimum credit score required for an applicant to be accepted. However, there are things you can do to improve your credit score, such as:
  • Making all of your payments on time
  • Registering on the electoral roll
  • Managing your credit cards responsibly
  • Staying away from credit repair agencies
Making a lot of credit applications with different lenders can leave a negative mark on your credit report.
Credit scoring is closely regulated by the Financial Conduct Authority (FCA). If you are turned down for credit, the lender is not obliged to reveal the reason why. However, some industry associations require their members to provide a satisfactory reason. You can also send complaints to the Financial Ombudsman Service if you experience problems with any credit reference agency.