How Credit Rating Sites Work

Posted 21 May 2019 by Nick Parkhouse

Want a mortgage or credit? You’ll need to know how credit rating sites work. Here's your complete credit scoring guide...

If you’re thinking of taking out a new mortgage or applying for a credit card or personal loan, the lender is likely to check your credit rating as part of your application.

But what information do these agencies hold? How do credit rating sites work? And what constitutes a ‘good’ credit score? Keep reading for answers to these questions and more in your guide to how credit rating sites work.

Who are the UK’s credit reference agencies?

There are three main credit reference agencies in the UK:

  • Experian
  • Equifax
  • TransUnion (formerly Callcredit)

These agencies compile your credit report based on information provided to them by a range of sources, including banks, building societies, retailers and the electoral roll.

Using this information, these agencies calculate a ‘credit score’ for you based on the information they hold. They then provide this credit score to lenders and other providers when you apply for any type of credit. The information they provide helps a lender to decide whether they want to accept your credit application.

Your guide to getting a mortgage if you have low credit

What do credit rating sites do?

Credit reference agencies hold and collate information about the credit you have and how you manage it.

Providers such as banks, lenders and credit card companies send information about the payments and activity on accounts such as mortgages, credit cards, personal loans and bank accounts. The credit reference agencies also receive public information, such as details of the electoral roll.

A credit rating site uses all this information to generate your credit report, and to calculate your credit score.

What is my ‘credit score’?

Your credit score is a score that represents your credit history. Using the information they receive from financial institutions and public records, credit reference agencies and lenders use a mathematical model to calculate your ‘score’ based on how you have managed your finances, how much credit you have, and whether you’re on the electoral roll (among other factors).

Your credit score helps lenders to decide whether they will agree your application for credit. It tells them what kind of borrower you are, and your score indicates how likely to are to make your repayments.

It’s important to note that no one has a single credit score. Every credit reference agency and lender operate different credit scoring criteria, so it’s not the case that you have one ‘score’ that applies across the board.

Your credit score is likely to be very different from lender to lender, and between credit reference agencies (see next).

Why do I have different credit scores at different credit rating sites?

As we discussed above, you don’t have one definitive ‘credit score’ figure. Each credit reference agency uses a different set of criteria – for example some lenders only report to one or two credit reference agencies while others will report to all three.

The three main credit reference agencies in the UK also have different scales for measuring your ‘score’. For example, the maximum scores are:

  • Experian – 999
  • Equifax – 700
  • TransUnion – 710

This can make things confusing. For example, you’d have a ‘good’ credit rating with a score of 421 at Equifax or 604 at TransUnion but you’d need a score of 881 to be considered ‘good’ by Experian.

Don’t worry about your specific score with any one agency. The information that each credit rating site holds about you may be exactly the same – they just operate different scoring systems.

Similarly, if a lender declines your application for credit it doesn’t mean that you should give up. Different lenders use different credit scoring criteria, so you might find you’re refused credit by one company but approved by another.

Can I improve my credit score?

Yes. There are steps that you can take to manage your credit score and to make it more likely that you’ll be approved for credit. Some ways you can do this include:

  • Make sure that you make any loan, card or mortgage payments on time every month.
  • Close any accounts that you don’t use. Having a large overall credit limit may be seen as a negative by some lenders.
  • Apply for credit and manage it well. Sometimes a lender will decline your application for credit if there’s no financial history on your credit file. If you’ve never had a credit card or loan, then it can be hard to prove that you can responsibly manage one! So, it can help to take out a financial product and make all the payments on time in order to show that you can manage your finances.
  • Review your credit report regularly (see below). You can make sure all your information is up to date and that any mistakes are corrected quickly.
  • Ensure you’re on the electoral roll. This can be one of the most important issues that determines your credit score.

How to put yourself in the best position when applying for a mortgage

Can I check my credit report?

Yes.

Regularly reviewing your credit report can help to you keep on top of your credit rating. It used to cost £2 to check your credit report, but since new GDPR regulations came into effect in May 2018 it’s now free.

You can choose to either check your report with one credit rating site or obtain regular reports from all three. Your report will contain information including:

  • Your personal information
  • Whether you are on the electoral roll
  • What financial accounts you have
  • Whether you have any missed payments or defaults
  • Whether you have any late payments
  • Financial links to other people
  • Other recent searches of your credit file (for example, if you’ve recently applied for a new financial product).

 

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