What Is a Credit Score And Why Is It Important?

Your credit score is a big deal. It influences everything from securing the keys to your dream home, to getting the best rates on car finance.

When you understand your score, it puts you firmly behind the wheel, helping you snag the best rates and deals.

Ready to become a credit score guru? Read on to discover what a credit score is, how it works, and why it matters.

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What is a credit score and why is it important?

Think of your credit score as a financial fingerprint. It’s a three-digit number that sums up how responsible you are to lenders and how well you handle the money you borrow.

In the UK your score is calculated by three primary credit reference agencies - Equifax, TransUnion, and Experian.

Each agency has its own unique way of crunching the numbers, so your score may vary slightly from one to the other.

Having a high credit score can open up doors to a broader range of finance options.

It could make approvals for car loans and mortgages more likely, plus it might grant you access to better interest rates and terms.

In a nutshell with a better credit score, borrowing becomes cheaper and more accessible.

On the flip side, a lower score can be a bit of a speed bump. It can leave you with fewer borrowing options and higher interest rates.

But here’s the good news: credit scores aren’t set in stone. They are dynamic and change based on how you handle your finances.

We’ll touch upon how you can improve your credit score a little later, but for now let’s help you understand how they work.

How does a credit score work?

Credit scores may sound complicated, but they’re easier to understand than you might think.

It all boils down to your financial track record. That is, every loan, credit card bill, and even those utility payments you pay each month.

Credit reference agencies gather this data to calculate your score.

So, let's break down exactly what goes into this all-important number.

Types of account

Variety is the spice of life, and it’s true for credit scores too.

Having a mix of account types, like mortgages, credit cards, bank accounts, and car loans, shows lenders you’re a pro at managing different financial commitments

How you spend

Maxing out credit cards or carrying big debts? These can be red flags for lenders.
Staying well under limits, paying off your account balances in full each month and managing debts wisely keeps your score healthier.

The electoral register

Think the electoral roll is just about voting? Think again.

When you’re on the register it reassures lenders you are who you say you are, which can help to improve your score.

Court records

Things like IVAs, CCJs, or bankruptcy are an anchor on your credit score. They impact your score for up to six years, making borrowing tougher.

Account history

The longer you’ve had credit, the better. Lenders like to see a long history of credit management as it shows exactly how well you manage your finances.

How you manage your accounts

How well you manage your accounts makes a huge difference to how likely you are to be accepted for finance.

Missed or late payments and going over your limit will put a real dent in your score. It also makes lenders think twice about approving your application.

What’s a good credit score?

If you’re wondering what a good score is, we’re here to help explain what ‘good’ looks like for each credit agency. Each credit agency has its own formula for calculating credit scores. So, what counts as a 'good' score can differ from one agency to another.
Let's peek under the bonnet at what a good credit score currently looks like with each of the big three agencies:



  • Excellent - 811-1,000
  • Very Good - 671-810
  • Good - 531-670


  • Good - 881-960
  • Fair - 721-880


  • Excellent - 628-710
  • Good - 604-627
  • Fair - 566-603

If your score doesn’t fit into these categories don’t worry, there's always a chance to turn things around!

More credit guides

How do lenders calculate your score?

Just like credit reference agencies, lenders also have different ways of adding up your score.

Here’s some of the key factors they’ll look at to crunch those all-important numbers:

Who you are and what you do

Lenders will review your personal and employment details to get a clear picture of your financial identity.


Can you comfortably pay a new loan and still have enough disposable income to comfortably cover your other financial commitments each month? An affordability check helps lenders ensure you're not biting off more than you can chew.

Account history

Like a financial diary, your account history reveals to lenders how well you have managed previous debts. It includes the good, the bad, and everything in between.

Payment history

Your payment history is one of the biggest factors that influences your score. Late payments can be an indication of financial management issues which could be a risk for lenders.

Mix of credit

Lenders like to see how well you manage various accounts and repayments – from credit cards to loans.

Having a varied credit portfolio shows you can easily manage your finances. 

How can I improve my credit score?

If you want to boost your credit score and cruise smoothly towards car finance deals, there’s a few different routes you can take.

It's like prepping your car for a long road trip – a bit of effort now means a smoother ride later.

Here's some practical things you can do to ensure your credit score is in a better shape:

Make sure you pay those bills on time

The number one rule to follow to improve your score is you need to make sure you don't miss payment deadlines.

Paying your bills on time shows you can handle your finances, reassuring lenders you’ve got this.

Reduce those debts

High levels of debt can really weigh your score down.

Lighten the load by lowering your debt and accelerating your credit score.

Get yourself on the electoral roll

Being on the electoral roll is a simple yet vital step to improving your score. It validates your identity and adds credibility to your financial profile.

Age your accounts

Older credit accounts show you’ve been responsible for credit for a while.

It’s like having a well-maintained vintage car – it shows care and responsibility.

Remember, it can take time to improve your credit score. However, taking the necessary steps now will pay off when it comes to applying for car finance.

At Carmoola, we look beyond the numbers, but your credit score still influences how much we can lend and the APR we can offer.

Following the tips above to boost your score can help you secure an affordable loan to get behind the wheel of your dream car.

FAQs About Credit Scores:

If my credit score is low, can I still borrow?

Yes, you can still borrow with a low credit score, but your options may be limited. Lenders may see you as a higher risk, which could lead to higher interest rates. Some lenders specialise in loans for people with bad credit scores, but these do tend to come at a high cost.

What information will credit agencies have about me?

Credit agencies collect data like your credit and loan history, bill payments, and whether you're on the electoral roll. They also record any financial links to others, past bankruptcies, CCJs, or IVAs. This information is used to calculate your credit score.

How can I build up my credit score?

To improve your credit score, make sure to pay bills on time, reduce outstanding debts, and keep old credit accounts open. Regularly check your credit report for errors, limit new credit applications, and use any existing credit responsibly. Being registered on the electoral roll also helps.

Why are there different credit scores?

Different credit scores exist because each credit reference agency uses its own method to calculate them. They may weigh financial behaviours differently and have unique scoring scales. This results in slight variations in scores across the different agencies.