What is a credit score?
When you apply for credit, lenders check a number of things before making a decision, including your credit score.
For a quick summary, watch our short video.
When you apply for a borrowing product like a credit card or loan, lenders will consider a number of factors to decide whether they can lend to you responsibly, one of those factors is called a credit score. If you also have a good payment history on all your accounts, have low outstanding debts and are able to afford your repayments, a good credit score means you're more likely to be seen as a lower credit risk.
Usually the higher your credit score the better and that means you're more likely to be offered credit. You're also more likely to be offered lower interest rates which makes borrowing cheaper and more likely to be offered higher credit limits.
To work out your credit score, a lender checks a number of things which may include details on your application form, how you've managed your accounts in the past and information from a credit reference agency. Some of this information is given a score. The lender adds up those scores as part of their credit score assessment and may check policy rules and affordability. They'll then decide whether they can lend to you and on what terms.
Credit reference agencies are companies that hold important information on people's identity, address and personal financial history. These companies get some of their information from public records like the electoral register and from court records. They'll also have information from other lenders showing whether you made repayments on time. Many lenders including Bank of Scotland offer eligibility checkers - ours is called One Check. This can help you find out what credit cards you may be eligible to apply for. Your answers to eligibility checker questions are not available to credit reference agencies and therefore they do not affect your credit score.
There are lots of things you can do that may improve your credit score over time. These include checking you're registered as a voter, making sure you pay your bills in time, clearing your debts and not regularly maxing out your credit card limits.
You should also avoid applying for lots of credit cards or loans at the same time. Your credit score is an important part of managing your borrowing so we hope you found this video helpful.
To find out more about credit scoring, please go to www.bankofscotland.co.uk/credit scoring
What else do lenders consider?
In addition to your credit score, lenders take a number of factors into consideration when making decisions about a credit application.
Make sure you manage credit carefully
The best way to protect and improve your credit score is to use and manage credit carefully. The following things could affect your score and your ability to get credit in future:
- Declined applications
If you submit a full credit application, a full credit search will be completed. If you’re declined, this will affect your credit score.
- Multiple applications
If you submit a number of full credit applications in a short period, that can also negatively impact your credit score. If you’re declined, it’s a good idea to wait at least 6 months before trying again.
- Missing payments
You must make at least the minimum payment on time each month, as detailed on your statements. If you miss a payment, this will be recorded on your credit record.
- Going over your credit limit
If you go over your agreed credit limit, that may also be reported on your credit record.
Frequently asked credit score questions
All lenders have different criteria for assessing applicants. If you have a low credit score, that doesn’t necessarily mean you can’t borrow, but it may mean that you aren’t offered the lowest interest rates or a high credit limit.
Submitting a number of credit applications could affect your credit score further, so look for lenders who offer an eligibility check first. That way you can find out if you’re eligible to apply for a credit card, without affecting your credit score.
All credit reference agencies collect similar information, although they don’t necessarily hold the same details, which is why it’s a good idea to check more than one if you’re working to build your score.
As well as information about the way you manage credit accounts, credit reference agencies also collect details from public sources, such as the electoral register and court records.
If you’ve checked the information held by a credit reference agency and there’s an error, you can contact the agency and ask them to investigate and correct their records.
They’ll make a Notice of Correction, which anyone reviewing your credit history in the future will take into consideration.