What really counts when it comes to credit scores

With finances, numbers are key. Whether it’s what you earn, your credit card balance or the interest rate on your mortgage, small changes can add up to a big difference. Yet there’s one number you shouldn’t pay too much attention to – your credit score.

YOU DO NOT HAVE A UNIVERSAL CREDIT SCORE IN THE UK

In the UK, there is no one single, number attached to your identity that tells a lender whether it should take you on as a customer.

What you do have is a credit file, that you have a legal right to see. It contains key public and private information about you, such as whether you’re on the electoral roll, any financial links to other people, county court judgements or decrees, and all credit products you’ve held for at least the last six years – plus whether you’ve paid on time.

It’s important to check for errors on these files, at least once a year, or before any major application, as even small problems can kibosh applications. There are three credit reference agencies. Check them all. For Experian go via mycreditclub.com, for Equifax clearscore.com, and for TransUnion creditkarma.co.uk

I HAVE A CREDIT SCORE, I KNOW WHAT IT IS!

That’s a common response. Years ago, credit reference agencies’ commercial focus was to make money from providing info to lenders. Then some bright spark realised the public was an untapped source of revenue and started looking at things to sell or market to them.

A big one was a credit score. That’s why they now give you a seemingly important number – for Equifax it’s out of 700, TransUnion 710 and Experian 999. The first clue that there’s no one universal credit score is that it is different for each firm.

EACH LENDER SCORES YOU DIFFERENTLY

When you apply for credit, each lender does its own individual assessment of you. It’ll plug in all the data it has about you in order to work out whether you’d be a profitable customer.

The number you’re given is just the credit reference agency’s indication of how a typical lender might view you based on your credit history.

Take someone with an excellent credit history, who earns £50,000 and applies for a £5,000 loan. They’ll likely be accepted. If they lose their job, and keep repaying credit on time, their credit history won’t have changed for the worse – but with no income, they’ll likely be rejected.

DON’T SWEAT SMALL MOVEMENTS, DO WORRY ABOUT BIG ONES

I’m often contacted on social media by people worried their ‘credit score’ has dropped by 20 points or so – often when they’ve done something they didn’t think would be negative, such as closing down an unused credit card.

Yet some lenders will see that as positive, as you’ve less available credit. Others as a negative, as longstanding accounts are evidence of a good track record of loyalty.

Big drops however should be taken seriously. It’s a decent indication that your data has changed, suggesting you’ve committed a credit sin such as missing a payment, going over your limit or defaulting. If you haven’t, check your credit file – it could be an error or identity fraud.

For more help see my 27 tips to boost your credit acceptance at mse.me/CreditBoost

■ Martin Lewis is the founder and chair of MoneySavingExpert.com. To get his free Money Tips weekly email, go to moneysavingexpert.com/latesttip