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What is Credit Scoring? What is a Credit Rating?

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By Alex Hartley | Last updated | Credit History and Ratings

Credit scores versus credit ratings

The way that you handle credit can have a significant impact on your future eligibility for loans or credit cards. That’s because, in the UK, credit reference agencies keep track of consumer financial histories. Lenders are provided with data to form the basis of lending judgements - to extend credit or not. Not everyone understands the way that the system works, especially when it comes to credit scoring and credit rating – so, what’s the difference between the two?

Sorting out the credit jargon

Everyone in the UK over 18 has a credit file that is accessible via one of the main credit references agencies – Experian, Equifax and Callcredit (also known as TransUnion). It’s important to understand that there is no such thing as a universal credit score i.e. one that applies across the board. Each credit reference agency will provide a different score, based on a different scoring system, and lenders will compile their own. Many of the terms that are used to talk about credit reports tend to be used interchangeably so, what do they all mean?

Why is it important to understand this?

If you want to make an application for any type of credit you will need to know what your credit history is going to look like to a lender. The credit rating you have is a good guide as to the judgements that a lender is likely to make when it comes to whether to approve an application for something like a loan or a mortgage. A so-called “bad credit history” is where your file contains records that depress your score and as a result credit may become more problematic or more expensive.

There are lots of different factors that can affect your credit rating, including:

Terms that relate to your credit history are often used interchangeably, which is why it can be so confusing to work out what lenders really need when you’re applying for credit. Ultimately, your credit rating (or credit score) won’t guarantee that you’ll be accepted for specific credit it just provides a guide. What’s more crucial is ensuring that your credit history is positive and that you are borrowing affordably and responsibly.

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