How are credit scores calculated?

Credit cards
By Eleanor O'Neill, Student Blog

29 April 2019

How is your credit score calculated and what affects it? Find out how to manage yours for access to financial products such as a mortgage.

Your 'credit score' is a rating ascribed to you by a financial lender based on a number of criteria that they have determined to single you out as a good potential customer.

Every lender has a different list of requirements and preferences that will shape the score. Their priority is building a picture to indicate your reliability and predict your financial behaviour, in order to manage any risk to themselves before entering a contract.

For example, what you may consider a 'perfect' financial history could count against you, as a credit card company will likely not favour a customer who always repays debts in full due to the little potential for profit. On the other hand, the same information may be positive for an insurance provider.

Given the impact this data can have on your life, it is always a good idea to keep informed on what your score may say about you.

What information influences your credit score?

Things like student loans, salary and declined applications from other lenders do not affect your overall score and most firms do not have access to this information. Depending on the purpose of the score calculation, generally included data sources are:

  • Your application form to the lender;
  • Previous interactions/history with the lender;
  • Shared data from energy and phone providers;
  • Fraud data;
  • Credit reference agency files i.e. electoral roll information, court records, previous credit checks, other financial associations and account data.

If you are concerned about a partner or roommate's poor credit history affecting your score, it is worth noting that another person's score will only influence your own if you are linked via a joint mortgage, a joint loan, a joint bank account (not savings) or if your energy bills are addressed to you as a couple e.g. 'Mr & Mrs'.

What can your credit score affect?

Most lenders will use your score to determine not only whether to award credit but which rates and products are best suited to your situation and their business. It can decide your success when applying for:

  • Mortgages
  • Credit cards
  • Loans
  • Mobile phone contracts
  • Car and home insurance.

You can raise your credit score by applying for a credit card, purchasing an item and then paying it off - this simple act proves your ability to manage credit. 

How to keep track

There are many online services that allow you to check your credit score, either for free or for a small charge. However, as stated, your credit score will differ between lenders and purpose, potentially rendering a 'universal' score uninformative.

Arguably, the most accurate picture will come from the credit reference agencies used by lenders to access your credit files: Experian, Equifax and Callcredit. It is wise to not check your credit too often as a hard check will also drop your score by a point or two - limit the number of credit products you apply for in one year to help with this.


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