The higher your credit score, the better your chances of getting approved for credit, and paying less when you do. But what exactly is a ‘good’ score?
Unfortunately, the answer isn’t simple – there’s no magic number that guarantees you approval. And to explain why this is, we need to bust two common myths about how credit scores work:
Myth #1: “You only have one credit score”
You actually have multiple credit scores. This is because your score may be calculated by different credit reference agencies, each with their own way of doing it.
You can check your credit score with any of the three CRAs in the UK: Equifax, Experian and TransUnion (formerly Callcredit). CRAs work out your score using information they’ve gathered about your credit history, such as how much you’ve borrowed and whether you make payments on time.
Your score may vary with each CRA. This is because:
- They may use different sources of information – for example, your lender may send data about you to only two of the three CRAs
- They may weight things differently – for example, one CRA may see your debt more negatively than the other two
- They use different scales – TransUnion’s score is out of 710, Experian’s is 999 and Equifax’s is 700
Equifax, Experian and TransUnion have bands to indicate how ‘good’ your credit score is:
However, these bands are just a way to help you understand where you sit on the CRA’s scale. As you’ll see in a moment, they don’t always reflect what lenders think of you.
Myth #2: “Lenders see the same score as you do”
Lenders see a different credit score than you do. Theirs may be calculated with a specific product (like a loan or credit card) in mind, to help them better predict if you’ll pay them back. Some lenders work out scores themselves and may use information that CRAs don’t have (e.g. details on your credit application, such as your income).
The credit score you get from a CRA is more generic than the one lenders see. It’s designed to give you an idea of your chances of getting credit, but it can’t tell you for certain if you’ll be approved.
So, you may still get turned down for credit even if a CRA says you have a high score. Equally, some lenders may be more willing to lend to you than your score lets on.
Why check my credit score?
It’s best to think of your score as a rough guide. It can’t tell you exactly which credit you can get, but it can still be useful for:
- Giving you an idea of how most lenders see you – this can be particularly helpful if you’re new to taking out credit or you haven’t done it in years
- Helping you track improvements to your credit history over time
- Alerting you if something’s gone wrong – for example, if your score drops suddenly and you don’t know why, it could be a sign of financial fraud or an error on your credit report
You may also want to check your credit report, as this can help you understand the types of information lenders may access. Once you’ve seen your credit history laid out in front of you, you may think twice before taking out a loan or dipping into your overdraft!
Just remember, not all companies can see everything on your credit report. Each CRA may have different data too, so it can be a good idea to get your report from all three.
You can find out how to check your credit score and report here.
To learn how to make the most of your money, head to Monzo Money Tips! 💸
For more comprehensive guides and helpful tips on how to make the most of your money, follow Monzo Money Tips on Facebook!