Understanding your credit score

The information in your credit report is key to getting the loans you need, but it is only half the story.

Before deciding whether or not to lend money, many organisations take your report, plus additional information included on your application form, and generate a credit score. This score predicts the risk involved in granting you credit.

Calculating your score

Computer programs score your application by looking at how past customers with similar profiles to yours repaid their credit commitments. Every lender uses a slightly different formula that represents its own and industry experience and these may be adjusted according to the type of credit you are applying for. So every credit application could generate a different credit score.

Your credit score will also change over time, as the information in your credit report and on your credit application form changes, too.

Your credit score is designed to predict how likely you are to repay a loan and to make your repayments on time. Over the years, automated scoring has proved to be more accurate and consistent than subjective human judgement. It also allows lenders to make decisions more quickly.

If you are turned down, you can ask the lender why. For example, a reason could be that the amount owed on your active accounts is too high; too many accounts have been opened in the last 12 months; you do not earn sufficient income. Although lenders are wary of revealing exactly how their scoring systems work - this would make them easy prey for fraudsters - they should be able to tell you the main reason your application was refused.

National credit score

Your National Credit Score is based on your Experian credit report and is an excellent guide to how lenders may assess the information held on your report.

Your score will be a number between 0 and 1,000. Generally, the higher your score, the easier you will find it to get loans and credit. But don't forget, lenders will also assess other information, such as the details you provide on your application form, when deciding whether to grant credit.

Essential information

Your National Credit Score can be a useful prediction of the way that lenders are likely to view your creditworthiness and is particularly valuable if you are thinking about applying for a new loan, because you can get an idea of how you may be assessed.

As a member of CreditExpert, you can order and view your National Credit Score online for the special price of £5.99 - click here if you are interested. You will be able to view your credit score for 12 months in your Score Library.

Get a free 30-day trial and a free copy of your Experian credit report.