Whether you’re buying a house, looking to finance a car or take out a loan, some of life’s big money moments may involve your credit score. Yet, this score is an often misunderstood part of your financial health.

What is a credit score?

Your credit score is usually a 3-digit number that credit card providers and lenders can use to get an idea of how you manage your money. It could help them decide whether to offer you credit and on what terms.

Generally, the higher your credit score, the more likely you are to get a better deal when borrowing money.

Why is a credit score important?

If you want ‘credit’ (to be trusted that you will pay back a sum of money over a period of time), your credit score gives lenders and credit card providers a better idea of how reliable you are at borrowing money and paying it back.

Think of your credit score like this - how comfortable would you feel lending money to someone if you knew they had a history of not paying people back? Or if they asked people to borrow money all the time? You’d probably feel nervous, right?

When your credit score might be used

• Loan and credit card approval - When we think of borrowing money, the most obvious examples are loans and credit cards. You’re being given a sum of money now with the promise that you will pay it back over time. A good credit score may increase your chances of being approved. Not only can it help with approval, but a good credit score may help you secure better payment terms or interest rates, leading to lower monthly payments.

• Mortgages - Buying a house is one of the biggest purchases most of us will make in our lifetime, and a mortgage is central to being able to do that. Your credit score is one of the factors involved in being offered better terms on your mortgage and making those monthly repayments as convenient as possible.

• Renting - Some landlords may check your credit score, and a good score might give them confidence that you are reliable and are likely to pay rent on time.

• Car finance - Second to your house, your car is another big financial investment in your lifetime that, unless purchased outright, may involve monthly payments. Car financing or leasing is a lender trusting you with a high-value item that they expect you to pay for in monthly instalments - your credit score gives the provider a better idea of your ability to do that.

• Paying for items over time - Alongside car finance, retailers may also offer pay-in-instalment options and, as there is a lender involved, your credit score might be checked. A common example of this is a new mobile phone contract, which you pay back over a period of time alongside paying for your monthly bill.

How is a credit score calculated?

Credit scores are generated using a points system based on your credit report. Different companies may have different ways of getting to the final score, but a lot of what they look at is the same.

Here are some of the factors that could affect your credit score:

• Your payment history, including missed payments and payments you’ve made on time
• Your total credit limit and how much you owe (on all credit cards and loans)
• How much of your available credit you’ve used (sometimes called ‘credit utilisation’)
• If you’re on the electoral register

Your payment history and how much you borrow are significant factors. So, keeping on top of your payments and managing your credit well is a good way to build and maintain a good credit score.

Understanding what can impact your credit score is key to ensuring it remains in a good place. To learn more, visit our guide: What can affect your credit score?opens in a new tab

What is a good credit score?

Generally, the higher your credit score, the more likely you are to get a better deal.

There are three main credit reference agencies - Equifax, Experian and TransUnion. Each of them will give you a different credit score. Our credit score tool, CreditWiseopens in a new tab uses TransUnionopens in a new tab to show your credit score and report.

Is your credit score good or does it need work?

• 628 and above is considered Excellent
• Between 604-627 is considered Good
• Between 566-603 is considered Fair
• 565 and below is considered Needs Work

Based on TransUnion rankings.

How to check your credit score

To find out your score, head to CreditWiseopens in a new tab. You can see your full credit report for free (which includes your payment history and the status of your credit account) without impacting your credit score. Plus, you can use the Score Simulator tool to see how taking out credit will affect your credit score.

How can I improve my credit score?

If you want to boost your credit score, here are a few good habits that could help:

• Stay within your credit limits - This shows that you’re managing your money well and helps you avoid any extra fees. Going over your credit limit could harm your credit score.
• Make your payments on time - Your payment history is a big part of your credit score. Make payments on time, and your score could increase. But if you miss payments, your score could go down. Setting up a Direct Debitopens in a new tab is a great way to make sure you never forget a payment.
• Use your credit card for essential everyday spending - Lenders want to see that you can manage a credit card. Using a credit card for smaller, everyday spends that you can pay back consistently on time can help you show this. If you're not able to consistently repay what you've spent on time, this could harm your score.
• Don't apply for credit too often - Every time you apply for credit, it shows up on your credit report. Applying too many times in a short period of time can make you look reliant on credit. That’s why it’s always better to use an eligibility checker - like QuickCheckopens in a new tab - to see if you’ll be accepted before you apply.
• Keep on top of your finances - Your credit score isn't just based on credit cards and loans. Paying other bills like phone contracts, energy bills and other regular payments on time can affect your score too.
• Check your score regularly - This won’t have a direct impact on your score, but it’s useful to keep an eye on it so you know if something’s changed.
• Register to vote - Lenders use the electoral register to check your name and address, so it’s important to make sure you’re registered to voteopens in a new tab.

How to fix a low credit score

If you have a credit score below 565, you may be wondering how to improve your score, especially if you have some of life’s big money moments in your near future. Before we get to building your score, it is important to understand why your current score might be where it is.

Why do I have a bad credit score?

There are many reasons your credit score might not be as high as you’d like, such as:

• Missing or late payments
• Declaring bankruptcy
• Being the subject of a CCJ (County Court Judgement)
• Only paying the minimum each month
• Having no credit history

It may seem strange that having no credit history can be one of the reasons why you have a lower score. If you've always saved your money and avoided borrowing, that's a great habit, but your credit score looks at how you've managed credit before. With no credit history, lenders have nothing to measure, so your score could start lower.

How to build your credit score

If you find yourself with a credit score that you want to build up, there are a few things you can do:

Fix immediate credit problems

• Check your credit reportopens in a new tab - Understanding what is causing your low credit score will give you an idea of what you can change.
• Check for errors - If you notice something on your report that you believe to be an error, you can dispute these claims (such as late payments that you know you paid on time). If your dispute is successful, the issue may be removed from your report, which may boost your score.
• Pay overdue accounts - Late payments can have the biggest impact on your credit score. If you have any overdue payments, getting those in line can give you a score boost.
• Bring owed balances down - How much you still owe on balances, such as credit cards, may negatively impact your ability to secure more credit; paying down those balances may help.

You should also keep in mind that your credit score could drop slightly when you apply for credit. So it’s important that you don’t apply for too much credit in a short space of time.

Build a track record of financial reliability

Your credit score will gradually improve the more you show that you are a reliable payer. Once you’ve fixed major issues, establishing some consistent financial good habits is the next step to building your score.

• Pay bills on time
• Limit new credit applications that do a ‘hard credit check’ if you aren’t certain of approval
• Manage joint accounts - If you have joint accounts, the other person's financial behaviour can have an impact on your credit score.
• Keep older accounts open - Credit history is key, and an older, well-managed account can be more helpful to your score than a new account that can shorten your credit history.

Building your credit score with a credit card

Consistency is key to improving your credit score. A credit card can help you manage how much you spend and pay back, allowing you to build a record of regular, on-time payments over time.

Capital One UK offers credit cards for those with poor creditopens in a new tab designed to help people build or rebuild their credit history. These come with a 34.9% APR Representative Variable and manageable limits to help you stay in control of your spending while you work on improving your score. Make sure to use your card responsibly, as not doing so could harm your score.

Find out more about your credit score

This blog is designed to act as a helpful starting point for understanding your credit score. Follow the links to find out more:

• How to build your credit score with a credit cardopens in a new tab - Understand how you can use a credit card to improve your credit score
• What can affect your credit scoreopens in a new tab - Stay on top of what could impact your score
• Credit score mythsopens in a new tab - Debunking common credit score myths to help you focus on what matters
• For the latest information on credit scores and reports from the UK's three main Credit Reference Agencies, check out these guides provided by Experianopens in a new tab, TransUnionopens in a new tab and Equifaxopens in a new tab.