Martin Lewis: Why you shouldn't worry too much about your credit score – it’s not actually a real thing

You do not have a universal credit score in the UK

In the UK, there is no single, all-encompassing number attached to your identity that dictates to a lender – be it a bank, credit card firm, mobile phone company or anyone else – 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. See the full What do they know about me? info.

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 (during a programme once, I managed to work out the reason one woman kept getting mortgage rejections came down to a problem with an incorrect address for a contract mobile phone she no longer used). 

There are three credit reference agencies, and all have files available online – you should check them all. See how to check your credit files for FREE.

Hold on, I do 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. Consumers' legal right to see their information was a pain they had to suffer. 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 (leveraging people's residual knowledge that this is real in other countries). That's why they now give you a seemingly important number – for Equifax it's out of 1,000 or 700 depending on which site you get it from, TransUnion 710 and Experian 999 – that apparently dictates your financial life.

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, using its bespoke scorecard. It'll plug in all the data it has about you – from your credit file, the application form and any past dealings you've had with it – in order to work out whether you'd be a profitable customer.

Note I'm talking about profit, not risk. While risk's a big factor – someone who has a history of defaults is likely unprofitable for most lenders – it's not the only factor. A bank may be offering a loss leading credit card in order to cross-sell customers a mortgage, so its actual scoring may factor in how desirable you are for that. The secretive nature of credit scoring makes it difficult to ever truly know.

The credit score you get given is just a rough model

The number you're given is in fact just the credit reference agency's indication of how a typical lender might view you based on your credit history. Useful, but not gospel (more like guess-pal) because:

• Each lender has its own scoring system; and
• Credit history is just one part of what lenders look at. 

In fact, just as important as your credit worthiness for lenders is the affordability test. For that, the single most important piece of information needed is how much you earn – and that's something credit reference agencies don't know and so isn't factored in the score you're given. 

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.

This is why in the MSE Credit Club we show your affordability score and also give an indication of your actual likelihood of acceptance for a basket of cards and loans – which in my view is a better indication than a credit score (which is why I designed that tool).

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 negative, as longstanding accounts are evidence of a good track record of loyalty. And more factors such as your total credit, debt and how it relates to your income can affect how they see it too.

So if you close a card, for example, or open a new bank account, and see your credit score drop by 20 or 30 points, don't over-worry. It's just a loose picture of whether you're a good risk or a bad risk for the hypothetical average lender.

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

For far more help on this see my 37 tips to boost your credit acceptance.