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Credit Score: Meaning, Range, Factors, Improving It

Credit Score

Your credit score can be seen as one of the most important numbers in your life. It can dictate whether you can get a loan, how much you will have to pay for that loan, and even whether you can rent an apartment. In the UK, credit scores range from 0-999 and are calculated based on various factors, including payment history, amount of debt, and length of credit history, but these are all topics we’re going to get into throughout this article.

Credit scores are defined using a credit scoring model. These are statistical models that take into account several factors and use this information to give each person a credit score. Some global models include:

  • Experian’s Credit Score
  • Equifax’s Credit Score
  • TransUnion’s FICO Score
  • VantageScore

To name a few. Each credit scoring model is different and is provided by different companies (see list above). Even if you acquire a credit score from a different company, the score can differ slightly, but they all take into account similar factors.

The credit scoring models use different algorithms, so there is no one formula to calculate a credit score. However, the main factors that are considered in most models are payment history, amount of debt, length of credit history, and types of credit used.

Typically, credit scores will range from 0-999. The higher the number, the better your credit score is. A good credit score is usually considered to be anything above 700. Some of the factors that you’ll need to be aware of that will affect your credit score include things like;

  • Payment history
  • Amount of debt
  • Length of credit history
  • Types of credit used
  • New credit applications

If you want to improve your credit rating, you’ll need to look into doing things like;

  • Paying your bills on time
  • Reducing the amount of debt you have
  • Keeping your credit balances low
  • Applying for new credit sparingly

There are several things you can do to improve your credit score. However, it’s important to keep in mind that these things take time, and there is no overnight fix. You’ll need to be patient and consistent to see a significant change in your credit score.

What is a Credit Score?

A credit score is a number that is used to indicate your creditworthiness. It is a three-digit number that ranges from 300 to 850, and the higher your score, the better. Lenders use your credit score to determine whether or not you are a good candidate for a loan and, if so, what interest rate they will offer you.

The idea of a credit score was founded by Fair, Isaac & Company, which is why your credit score is sometimes referred to as your FICO score. However, there are other companies that create their own credit scoring models. VantageScore and Experian are two examples of this.

Credit scores are seen as becoming important around the world. In the UK, for example, your credit score can be used to determine whether or not you are eligible for a mortgage. These scores started to be used around 1956 when taking out credit became increasingly popular.

Regarding personal finance in the modern-day, credit scores are important because they are one of the main ways that lenders determine whether or not you are a good candidate for a loan. If you have a high credit score, it means that you have a good history of repaying your debts, and therefore, you are more likely to be approved for a loan.

For example, let’s say you want to take out a car loan. The lender will most likely pull your credit score to see what kind of risk you are. If you have a high credit score, the lender will see you as being a low-risk borrower and will be more likely to approve your loan. However, if you have a low credit score, the lender will see you as being a high-risk borrower and will be less likely to approve your loan.

Credit scores are also used to determine things like credit card limits and interest rates. So, if you have a high credit score, you’ll likely have a higher credit limit and a lower interest rate than someone with a low credit score.

How does credit scoring work?

Your credit score is a number that ranges from 300 to 850 (a range that can vary slightly depending on your credit score provider). This number is used to indicate your creditworthiness, and the higher your score, the better.

Your credit score is calculated using several factors, including payment history, amount of debt, length of credit history, and types of credit used.

Payment history is one of the most important factors in your credit score. It accounts for 35% of your score. This means that if you have a history of making late payments or missing payments altogether, it will have a negative impact on your score.

The amount of debt is another important factor in your credit score. It accounts for 30% of your score. This means that if you have a lot of debt, it will have a negative impact on your credit score.

Length of credit history is the third important factor in your credit score. It accounts for 15% of your score. This means that if you have a long credit history, it will be positive for your credit score.

The final factor is the types of credit used. It accounts for an averagely of around 20% of your score. This means that if you have a mix of different types of credit, it will be positive for your credit score.

Some of the other principles to be aware of include:

  • Your credit score is based on the information in your credit report.
  • You have multiple credit scores, one from each of the main credit bureaus.
  • Credit scores are important, but they’re not the only factor that lenders look at when considering a loan.
  • You can get your free annual credit report from each of the main credit bureaus.
  • You can improve your credit score by paying your bills on time, maintaining a good credit history, and using a mix of different types of credit.

An example of a credit score working principle could be something like this:

An individual has been making all their credit card and loan payments on time for the past year. They have a credit score of 800. This person is considered to be a very low risk to lenders and will likely be approved for any loan or credit card they apply for with ease.

On the other hand, an individual has been making late payments on their credit card and loan for the past year. They have a credit score of 500. This person is considered to be a very high risk to lenders and will likely be denied for any loan or credit card they apply for.

What is the credit score range?

In the UK, there are four main credit score providers:

  • Equifax
  • Experian
  • TransUnion (formerly Callcredit)
  • Crediva (formerly ClearScore)

Each credit score provider uses its own scoring system, which means that your score can range from anywhere between 0 and 1000. Each credit score provider determines these ranges.

  • The Equifax credit score range is from 0-1000
  • The Experian credit score range is from 0-999.
  • The TransUnion credit score range is from 0-700.
  • The Crediva credit score range is from 0-999.

The success rate changes on these scores by a few points, but in general, the higher your score, the more likely you are to be approved for credit.

Of course, if you go to a different country, or a new credit providers are founded or adapted, these scores, ranges, and success could change, so it’s important to ensure you’re always checking the most up-to-date figures from the providers themselves for an accurate view of what’s going on and what your credit score means.

Credit Score Ranges

Depending on the credit score provider, your credit score can mean different things on a different range. 

Equifax:

0-438: Poor

439-530: Fair

531-670: Good

671-810: Very Good

811-1000: Excellent

Experian:

0-720: Poor

721-880: Fair

881-960: Good

960-999: Excellent

TransUnion:

300-600: Very Poor

601-658: Poor

658-719: Fair

720-781: Good

781-850: Excellent

Crediva (formerly ClearScore): 

0-409: Very Poor

410-519: Poor

520-604: Fair

605-724: Good

725+: Excellent

It’s important to remember that these are just ranges, and your score could be anywhere within them. The higher you are on the scale, the better off you’ll be when it comes to getting credit.

Using these figures, here’s an example of a credit score in action.

An individual has a credit score of 800. This person is considered to be a very low risk to lenders and will likely be approved for any loan or credit card they apply for with ease.

On the other hand, an individual has a credit score of 500. This person is considered to be a very high risk to lenders and will likely be denied for any loan or credit card they apply for.

1. Fair Credit Score Range

A fair credit score is typically one that falls in the range of 601 to 660 on the FICO® Score☉, a commonly used credit scoring model, but it can depend on your credit score provider. In the UK, an example of a fair credit score would be something like TransUnion’s “Good” range of 720 to 850.

A fair credit score means that you’re starting to establish a good credit history and may be eligible for some credit products, but you’re not yet in the “good” or “excellent” ranges that would give you the best terms on loans, credit cards, and other products.

You may be able to get a credit card with a fair credit score, but you’re likely to have a higher interest rate than someone with a “good” or “excellent” score. The same is true for loans – you may be able to get approved, but you’re likely to pay a higher interest rate than someone with a better score.

2. Good Credit Score Range

A good credit score is typically one that falls in the range of 661 to 780 on the FICO® Score but can depend on your credit score provider. An example of a good credit score in the UK would be something like  TransUnion’s “Good” range of 720 to 781.

A good credit score means that you’re starting to establish a very reputable credit score and may be eligible for most credit products with ease.

You’re likely to get approved for a credit card or loan with a good credit score and may even be able to get a lower interest rate than someone with a fair credit score. Whether you’re taking out a payday loan, a car loan, credit card, or even a mortgage,  a good credit score will give you an advantage in getting approved and may get you a lower interest rate, meaning you’ll save money in the long term.

3. Very Good Credit Score Range

A very good credit score in the UK would be a higher-end score, like Equifax’s 671 to 810 range, which is where the majority of people in the UK sit with their credit scores. 

A very good credit score gives you the best chance of being approved for any loan or credit product you apply for. You’re also likely to get the best interest rates on loans and credit cards, which can save you a significant amount of money over time.

For example, if you’re taking out a £100,000 mortgage with a very good credit score, you could get access to some of the best interest rates around because you’re trusted with credit.

If you have a very good credit score, you’re in the top tier of creditworthiness and are in a great position to get approved for any loan or credit card. You’re also likely to get the best interest rates, which can save you money over time.

4. Excellent Credit Score Range

An excellent credit score is typically one that falls in the range of 781 to 850 on the FICO® Score but can depend on your credit score provider. In the UK, an example of an excellent credit score would be something like  TransUnion’s “Excellent” range of 781 to 850.

An excellent credit score is the highest tier of creditworthiness and means you’re very likely to be approved for any loan or credit card you apply for. You’re also likely to get the best interest rates on loans and credit cards, which can save you a significant amount of money over time.

For example, if you’re taking out a £100,000 mortgage with an excellent credit score, you could get access to some of the best interest rates around because you’re seen as a very trustworthy borrower.

If you have an excellent credit score, you’re in the top tier of creditworthiness and are in a great position to get approved for any loan or credit card. You’re also likely to get the best interest rates, which can save you money over time.

If you’re taking out a loan like a mortgage, car loan, or even a personal loan, an excellent credit score will give you the best chance of getting approved and may get you a lower interest rate, meaning you’ll save money in the long term.

Credit Score Factors

A few key factors go into your credit score that you’ll need to be aware of. This is because understanding these factors can help you improve your credit score over time.

Once you’re aware of these factors, you can start to improve your credit score by making small changes to your behaviour. With improvements to your score, you’ll have access to more credit products at better interest rates, which can save you money in the long term.

Some of the factors to be aware of include:

  • Payment history: This is one of the most important factors in your credit score.  It includes things like whether you’ve made your payments on time, how often you’ve missed payments, and whether you’ve ever defaulted on a loan.
  • Total Amount Owed:  This is the second most important factor in your credit score. It includes things like how much debt you have, what your credit utilisation ratio is, and whether you have any delinquent accounts.
  • Credit utilisation: This is the amount of credit you’re using compared to the amount of credit you have available. It’s important to keep your credit utilisation low, as it’s one of the factors that lenders look at when considering your creditworthiness.
  • Length of credit history: This is the length of time you’ve been using credit. The longer your history, the better it is for your score.
  • Credit mix: This is the variety of different types of credit products you have, such as credit cards, mortgages, and car loans.
  • New credit: This is the number of new credit accounts you’ve opened recently. It’s important to space out your applications so you don’t have too many hard inquiries on your report, as this can hurt your score.

1. Payment History

One of the most important factors in your credit score is your payment history. This includes things like whether you’ve made your payments on time, how often you’ve missed payments, and whether you’ve ever defaulted on a loan.

Your payment history is a good indicator of your future behaviour, so it’s important to make sure you’re always making your payments on time. If you have any late or missed payments, be sure to bring them current as soon as possible.

In addition, try to avoid defaulting on any loans. This can have a significant negative impact on your score and will make it difficult to get approved for any future credit products.

An example of payment history would be as follows: You have never missed a payment, but you have been late on a payment twice in the past year. Therefore, your payment history would be considered good but not excellent.

2. Total Amount Owed

The second factor in your credit score is the total amount you owe. This includes things like how much debt you have, what your credit utilisation ratio is, and whether you have any delinquent accounts.

It’s important to keep your debt levels low, as this shows lenders that you’re a responsible borrower. In addition, try to keep your credit utilisation ratio below 30%, as this can help improve your score.

If you have any delinquent accounts, be sure to bring them current as soon as possible. This can have a negative impact on your score and make it difficult to get approved for any future credit products.

An example of the total amount owed would be as follows: You have $15,000 in debt, with a $30,000 credit limit. Your credit utilisation ratio is 50%. You have one delinquent account that is currently in collections.

In this example, your total amount owed is considered to be high. This is because your credit utilisation ratio is above 30%, and you have one delinquent account.

3. Length of Credit History

The third factor in your credit score is the length of your credit history. This is the length of time you’ve been using credit. The longer your history, the better it is for your score.

Lenders like to see a long history of responsible credit use, as it shows them you’re a reliable borrower. If you have a short credit history, you can try to build it up by opening new credit accounts and using them responsibly.

An example of the length of credit history would be as follows: You have been using credit for 15 years. You have never missed a payment, and your credit utilisation ratio is below 30%.

In this example, your credit history length is considered good. This is because you have been using credit for a long time, and you have a good payment history.

4. Type of Credit

The fourth factor in your credit score is the type of credit you have. This includes things like credit cards, mortgages, and car loans. 

It’s important to have a mix of different types of credit, as this shows lenders, you’re a responsible borrower. If you only have one type of credit, you can try to diversify your credit portfolio by opening new accounts.

An example of the type of credit would be as follows: You have two credit cards, one mortgage, and one car loan.

In this example, your type of credit is considered to be good. This is because you have a mix of different types of credit products.

5. Initial New Credit             

The fifth factor in your credit score is the initial new credit. This includes things like how many new credit accounts you’ve opened, how many hard inquiries you have, and how long it’s been since you opened a new account.

It’s important to keep your new credit accounts to a minimum, as this can have a negative impact on your score. In addition, try to avoid hard inquiries, as these can also have a negative impact on your score.

An example of the initial new credit would be as follows: You have opened two new credit card accounts in the past six months. You have one hard inquiry on your credit report.

In this example, your initial new credit is considered to be fair. This is because you have opened two new credit card accounts in a short period of time, and you have one hard inquiry.

How can you Improve your Credit Score?

There are a few things you can do to improve your credit score. First, make sure you’re paying all of your bills on time. This includes things like your credit card bills, mortgage, car loan, etc.

In addition, try to keep your balances low. This shows lenders you’re using your credit responsibly and not maxing out your credit cards.

Finally, try to avoid hard inquiries. Hard inquiries can have a negative impact on your score and make it difficult to get approved for future credit products. An example of a hard enquiry would be something like applying for a new credit card. A soft enquiry would be something like checking your own credit score.

If you follow these tips, you should see a gradual improvement in your credit score over time. Remember, it takes time to build up a good credit score, so don’t expect miracles overnight. Just keep at it, and you’ll eventually see the results you’re looking for.

How do you Calculate your Credit Score?

The credit score is calculated using several factors, including payment history, credit utilisation, length of credit history, type of credit, and initial new credit.

Each of these factors is given a certain weight, and the final score is calculated using a formula.

The exact formula used to calculate the credit score is a closely guarded secret, as its proprietary information belonging to the credit bureaus and will be specific to each provider.

The best way to figure out your credit score is to use the credit score calculator on the score of each credit bureau’s website. You can also check your credit score for free on several websites, including Credit Karma and Credit Sesame.

How do you know whether a credit score is good or not?

A good credit score is typically anything above 700. However, it’s important to remember that there’s no such thing as a perfect credit score.

There are a number of factors that go into your credit score, and each person’s situation is different.

For example, someone with a credit score of 720 may be considered to have good credit, while someone with a credit score of 780 may be considered to have excellent credit.

It’s also important to remember that your credit score is just one factor that lenders consider when you apply for a loan or credit card. 

Other factors, such as your income and employment history, are also taken into account.

However, there are some lifestyle factors to consider to suggest whether or not you’d have a good credit score. For example, if you don’t have a job and are taking out lots of credit, you probably won’t have a good credit score.

Another example would be as follows: You are employed, have a good income, and pay your bills on time. However, if you have a few late payments on your credit report, your credit score will be lower.

In this case, you would still be considered to have good credit, but it’s not excellent.

There are a number of factors that go into your credit score, and each person’s situation is different. That’s why it’s important to remember that there’s no such thing as a perfect credit score.

What is the best possible credit score?

The best possible credit score in the UK is 1000 when you’re getting your score from Equifax. Other credit bureaus, such as Experian and Callcredit, have different scoring systems, which varies the range.

For example, Experian’s credit score range is from 0-999, and Callcredit’s credit score range is from 0-700. The reason the limit is set to this is that these are the highest scores that can be achieved on each respective credit scoring system.

It’s important to remember that there is no such thing as a perfect credit score, and even if you have a high credit score, it doesn’t mean you’re guaranteed to be approved for every loan or credit card.

Lenders will still consider other factors, such as your income and employment history when you apply for a loan or credit card.

How can you check your credit score?

The best way to check your credit score is to use the credit score calculator on the website of each credit bureau. Most websites are accessible with a quick Google search.

You can also check your credit score for free on a number of websites, including Credit Karma and Credit Sesame.

Make sure you check your credit score as it’s such a good way to stay on top of your finances and make sure there are no surprise blemishes on your report.

It’s also a good idea to check your credit report regularly, as this will show you all the information that is being used to calculate your score.

You can get a free copy of your credit report from each of the three major credit bureaus in the UK – Equifax, Experian and Callcredit – once a year, but typically, once you sign up, your score will update monthly, and you’ll be notified when this happens, and given advice on how you can improve it, as well as exploring what loan options are available to you.

What are the credit score models?

There are three main credit score models in the UK, which are: Equifax, Experian and Callcredit.

Each credit bureau has its own scoring system, which is why your score may be different depending on which one you use.  These are called models because each one has a different way of calculating your score.

For example, Equifax’s credit scoring model is based on data from the Electoral Roll, while Experian’s credit score model uses information from your credit report.

Callcredit’s scoring system is similar to that of Experian, but it also takes into account any public records that may be on your credit report, such as CCJs.

It’s important to remember that each lender will have their own criteria for what they consider to be a good or excellent credit score, so it’s always worth checking with them before applying for a loan or credit card.

What are the credit scoring companies?

The credit scoring companies are the three main credit bureaus in the UK: Equifax, Experian and Callcredit. These companies each have their own credit score model, which is used to calculate your credit score.

It’s important to remember that each lender will have their own criteria for what they consider to be a good or excellent credit score, so it’s always worth checking with them before applying for a loan or credit card.

However, what credit score providers are available to you will depend on which country you’re in. For example, if you’re in Australia, the three main credit scoring companies available to you will include;

  • Credit Simple
  • Equifax
  • Experian

These are just some of the credit scoring companies available in different countries., so it’s always worth doing the research for the most up-to-date services available to you.