What is a credit score and how does it work?

Your credit score indicates to lenders how well you manage your finances.

What is a credit score?

There are 3 main credit reference agencies in the UK. Each collects information about you from public records, lenders and other service providers, which helps them to create a ‘credit score’.

This number indicates how likely you are to repay anything you borrow, based on your past history of using credit and managing finances. A higher credit score could mean you’re more likely to be accepted when you apply for credit, although it’s not a guarantee.

However, it’s useful to know that you don’t have one credit score. Each credit reference agency could hold different information about you, and has their own way of scoring. Your score also changes over time, just as your circumstances do.

Not only that, but lenders and other service providers complete their own scoring when you apply for credit, including information from your credit record. They also consider other factors like affordability and any past account history.

Build your understanding by watching a short video.

Understanding credit: What is a credit score?
  • Helping you to better understand credit scores.

    When you apply for a credit card or loan, lenders will look at certain credit-related information about you to decide if they can lend to you responsibly.

    One of them 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. And usually, the higher your credit score, the better.

    A good credit score will mean you will have a greater chance of being offered credit, possibly at lower interest rates, meaning it will cost you less to borrow and you’re more likely to be offered higher credit limits.

    Credit reference agencies are independent businesses that help lenders and other organisations to make informed, responsible decisions. They hold information about most adults in the UK including their identity, address and personal finance history.

    These agencies will use information from public records, such as the electoral register, and court records.

    They will also have information from other lenders, showing if you made repayments on time.

    Some lenders offer tools to check your credit score for free, with no impact on your credit file. Ours is called ‘Your Credit Score’. It lets you see your credit information from TransUnion – one of the three main credit reference agencies in the UK. You can also see the factors that impact how your credit score is calculated.

    Now, let’s look at some ways you can help improve your credit score:

    Make sure you’re registered to vote on the electoral register.

    • Be sure to pay your bills on time.
    • Pay off your debts as soon as you can.
    • Don’t regularly spend up to your credit card limit.
    • And avoid applying for lots of loans or credit cards at the same time.

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How does a credit score work?

Credit reference agencies collect information from a number of sources, all of which could influence the credit score they generate. These include:

Types of account

Having a mix of credit accounts shows you can manage different types of borrowing, from secured lending, like a mortgage, to unsecured credit cards and loans.

Court records

Defaults, County Court Judgements (CCJs), Individual Voluntary Agreements (IVAs) and bankruptcy may negatively affect your credit score for up to 6 years.

Length of account history

The average age of your active credit accounts can affect your credit score. Keeping the same accounts for a long time, suggests you’re good at managing them.

The electoral register

Being on the electoral roll is one way that your identity and home address can be confirmed, which could help to improve your credit score.

A woman carrying a shopping bag

How you spend

If you carry a lot of debt and are often close to your credit limits, it could suggest you’re reliant on credit. Keeping balances low could improve your credit score.

How accounts are managed

Lenders and service providers will report arrears, missed, late or defaulted payments, and if you go over any agreed credit limits.

What is a credit score used for?

When you apply for credit, lenders and service providers contact their preferred credit reference agencies to check your credit record. This will highlight any potential risks associated with offering you credit. Your credit score can also influence the interest rates and credit limit you’re offered.

This is routine for any credit application, whether it’s for a mortgage, credit card, personal loan, overdraft or car finance

How is a credit score graded?

Each credit reference agency uses a different scale, but generally speaking, the higher the number is, the better your chances are of being accepted when you apply for credit.

It’s useful to know this could be different to the information lenders and service providers see – they consider other factors, as well as information from your credit record – but it still gives you an impression of your financial position at any moment in time.

Below are examples from the credit reference agencies Lloyds Bank use:



Very good



Very poor


961 - 999

Very good

881 - 960


721 - 880


561 - 720

Very poor

0 - 560



Very good



Very poor


811 - 1000

Very good

671 - 810


531 - 670


439 - 530

Very poor

0 - 438



Very good



Very poor


628 - 710

Very good

604 - 627


566 - 603


551 - 565

Very poor

0 -550

How lenders calculate your credit score

Lenders are very experienced at assessing the eligibility of borrowers. In addition to your credit score, they also consider:

Details you provide

As part of a credit application you’ll be asked for some personal and financial information, which could include your address, employment status, income and regular expenditure.


Lenders might review what you can reasonably afford to repay, based on your income, outgoings and existing borrowing.

Your account history

Lenders usually keep records about accounts you’ve held with them in the past, including information about how well they’ve been managed.

How to improve your credit score

Anything you do will take time, but you could improve your credit score by:

  • Paying all bills on time – including credit repayments, utility and other household bills.
  • Managing accounts well – stay below your credit limits and try to reduce debit balances whenever possible.
  • Limiting applications – whether or not you’re accepted, ‘hard’ credit searches could affect your credit score, especially if you make a number of full applications in a short period of time.
  • Registering to vote – it may boost your credit score if you’re on the electoral register.

More about improving your credit score

Checking your credit score

It’s a good idea, especially if you’re planning an application, to check the details held by each credit reference agency. If any of their information is incorrect, you could submit a data dispute to the relevant agency, so they can investigate and update their records accordingly.

The agencies used by Lloyds Bank include TransUnion, Experian and Equifax.

Check Your Credit Score with Lloyds Bank

Frequently asked questions about credit scores

Key points about credit scores

Credit scores are created by the UK credit reference agencies.

  • When you apply for credit, lenders and service providers check your credit record as part of their decision-making process.
  • Depending on the type of borrowing, if you have a good credit score, you’re more likely to be offered better interest rates and higher credit limits.
  • A lower credit score could indicate you have limited experience of managing finances, or you’ve made some mistakes in the past, making you a higher risk for lenders.
  • You may be able to build your credit score over time, for example, by managing accounts carefully and limiting new credit applications.
  • The information held by each credit reference agency can vary, so it might be a good idea to check your credit scores and reports with TransUnion, Experian and Equifax.

Where next?

Know where you stand with Lloyds Bank

Sign up for ‘Your Credit Score’ to see your rating with TransUnion. It’s free to check and won’t hurt your credit score.

More about Your Credit Score