Your Credit Score

A credit score is a mathematical tool used by lenders to help them decide whether or not to grant a credit card, loan, or some kind of service.

To calculate a credit score, the credit reference agency uses information in your credit file, together with the information you provide on a credit application.  A credit score simplifies decisions, because the lender can look at a single number instead of analysing a lengthy credit report.

Credit Scores Measure Risk

What are the odds that you will fail to make payments in the next two to three years? Low credit scores are indicate high risk to a lender. A high credit score gives a lender confidence that you will repay according to the terms of the loan.

Your credit score provides an objective way to determine the risk in offering you credit.  Credit scores do not take account of gender, religion or race, or other irrelevant things that might influence a decision.

Lending Decisions

It is important to understand that credit reference agencies don't make decisions on your credit. They simply provide the information that they have gathered.

Lenders make their own decisions using the credit score, the full credit report, and all the other information they have available to them. For instance, they often use the information you give them on your application form, including details of your job, how long you have been at your address, whether you own your own home and how many dependants you have. This information is not held on your credit report.

Using past experience with consumers at different score levels, lenders establish credit score ranges. Credit limits are based on where your score falls within the ranges. Below a certain score level, credit might not be offered to you, or a higher interest rate might be charged. The cut-off point varies from lender to lender. Above certain levels, you may get better rates, or higher credit limits. 

Credit scores help companies to make quick decisions, and to lend responsibly.