A credit score is a numerical summary of your creditworthiness — how likely you are to repay borrowed money based on your past financial behaviour. Lenders use it to decide whether to offer you credit and at what interest rate. The higher your score, the lower the interest rate you will typically be offered.
In the UK, there are three main credit reference agencies: Experian, Equifax, and TransUnion. Each uses its own scoring methodology, so your score will differ slightly between them. Scores generally range from 0 to 999 (Experian), with higher scores indicating better creditworthiness. Lenders — banks, mortgage providers, credit card companies — access these scores when you apply for credit, and they make their decisions based on a combination of your score and their own internal criteria.
Your credit score is built from several factors. Payment history is the most important: whether you pay your bills on time, every time. A single missed payment can significantly damage your score. Credit utilisation — how much of your available credit limit you are using — matters too. Using more than 50% of your credit limit tends to hurt your score.
Length of credit history rewards those who have been managing credit responsibly for a long time. Types of credit (a mix of credit cards, loans, and a mortgage is viewed more favourably than only one type) and recent credit applications also factor in. Applying for several new credit products in a short period — which generates multiple "hard searches" on your file — can temporarily lower your score.
A poor credit score does not just affect whether you can get a loan. It affects the interest rate you pay on that loan, which can translate to thousands of pounds more in payments over a mortgage term. Some landlords and employers check credit scores too.
Building a good credit score is not complicated: pay on time, do not max out your credit cards, and avoid applying for too much credit at once.