The credit industry in the UK is massive with almost 500,000 store and credit cards and approximately 100,000 mortgages issued a month. Lenders must make a multitude of decisions of whom to lend or not daily. For all of this, they need credit data for all the applicants that are available in the form of credit history and scores.

Here is some of the important stuff you need to know about a credit score:

Understanding a credit score

It is a three-digit score allocated to individuals 18 and above in the UK and shows how creditworthy they are. All the credit-related information is gathered by three credit reference agencies in the UK viz. TransUnion, Equifax and Experian. Every lender has their method of credit score calculation with the data they get from the CRAs.

For an individual to know what their credit score is they can subscribe to any online service for a fee and get their latest credit score. Some services also offer this facility free of cost.

Calculation of a credit score

There is no definite format as to how the score is calculated. Neither the CRAs nor lenders share any information as to how they go about calculating the score. However, there are certain common factors they refer to in the credit score calculation process like:

  • If the applicant has a permanent address at this they have lived for some time.
  • Repayments and credit card payments on the due dates.
  • The name is on the electoral roll.
  • The kinds of loans the applicant has taken.
  • If the individual applies for credit frequently?
  • The length of the credit history of the applicant.
  • If the applicant uses the loan facility or credit cards to its upper limits.

Good credit score

The credit scoring pattern differs between CRAs. The one common factor is having a good score is considered acceptable. Any individual whose credit score lies between 60 – 66% of the maximum will have a good score that is acceptable. E.g., Equifax calculates from 1000 with any score between 550 and 700 considered acceptable with a score above that range would be good and anything above 800 very good.

When does one qualify for a credit score?

Once an individual is 18 years they qualify for a credit card, mortgage, loan and any kind of credit agreement. Anyone younger will not be eligible for credit as legally they cannot be liable for payments thus making them ineligible for applying for any type of credit. Upon reaching 18 years of age and opening a credit line of any kind, CRAs and lenders begin calculating the score based on the credit history and activity of an individual.

Importance of a good credit score

Having a good credit score carries several advantages to it. An applicant with a good credit score will find it easier to get a mobile contract and a credit card or a mortgage with attractive interest rates and other perks. The best deals are available to only those with good credit scores.