First time buyer guide


Understanding Credit Scores

When you apply for a mortgage, loan or credit card, lenders will need to find out how risky it is to lend you money before allowing you to borrow any cash. A credit score is the tool they’ll use to figure out how trustworthy you are.
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What’s a Credit Score?

Your credit score is basically a number resulting from analysing your financial history (payments for loans, credit cards or things like phone bills). Its purpose is to size up how likely you are to pay back your loan, and what kind of borrower you are, in order to determine how much you can borrow and what interest rate you’ll be paying.

The standard rule is that the higher the score, the better your chances of getting good credit deals will be.

Credit Report vs Credit Score

Despite the fact that the two concepts are often used interchangeably, it’s important to understand that there’s a big difference between them:

  • Credit report: it’s a file that contains detailed information about your credit history. It shows information such as if you’ve borrowed money and how much, if you pay your bills on time, and public record information about you (like bankruptcies and repossessions).
  • Credit score: it’s a three-digit number resulting from all the information contained in your credit report. Once every aspect of your report has been taken into account, a mathematical formula is applied to determine what your score should be.

Read our How to Check Your Credit Report article to learn more.

Credit Reference Agencies

Your credit report is put together by companies known as credit reference agencies (CRAs). The three main CRAs in the UK are: Experian, Equifax and TransUnion (formerly, Callcredit).

CRAs produce and hold on to credit reports. They compile data on your credit history, put it onto a credit report and then calculate your score derived from all this information. When assessing your application for credit, lenders will turn to one or more of these agencies for information about you.

What Credit Score Is Needed to Buy a Home?

There’s no set minimum score to buy a home, it will vary depending on the lender. But knowing your score is important as it determines the conditions and rates of the mortgage you’ll be offered.

If you have a high credit score, lenders believe there’s a good chance you won’t have problems paying off your loan. You will be seen as a low-risk investment, and therefore they will be more inclined to offer you a lower rate on your mortgage.

How Can I Check My Credit Score?

You have a legal right to check your credit report for free. You can do this online with the three main credit reference agencies: Experian, Equifax and TransUnion.

If possible, check all three as different lenders use different agencies.

  • Experian offer a free-forever service, or a full monitoring service (free for 30 days).
  • Equifax offer a free service for the first 30 days.
  • TransUnion offer a free-for-life service via

How Can I Improve My Credit Score?

There are plenty of simple things you can do to give your credit score a boost:

  • Register to vote: lenders use this information to check your address and that you are who you say you are.
  • Pay your bills on time: try to pay bills by direct debit so you don’t miss any payments.
  • Check your files for any errors: mistakes could slip into your credit history from time to time, make sure that the information is correct.
  • Check if you’re financially linked to another person: someone else’s details could affect your credit rating if they’re financially linked to you, for instance, through a mortgage or shared bank account.
  • Cancel unused credit and store cards: they don’t leave a record of your repayment history and therefore leave no room for lenders to check how you handle your payments.
  • Build your credit history with a credit card (if you’ve never had credit): accessing loans and credit cards may be hard for you if you’ve never borrowed any money before. The idea of taking out a “credit builder” card is to help you build your credit history and to show that you can and do pay on time.
  • Pay off your debts: lenders have access to the information about how much debt you have. If you have too much debt it will damage your files.
  • Space out and limit your credit applications: lenders might take your multiple requests for credit as a sign that you are financially weak. Loan companies are always on the lookout for reliability.
  • Put your rent payments to work: some companies such as RentalStep and CreditLadder offer a free service where they will report your rent payments to Experian (credit reference agency) so these payments can count towards your score.

Your credit score might not seem relevant to you right now, but understanding how it works and doing everything you can to improve it will definitely make a difference when it comes to applying for a mortgage and getting the best deal.