Credit scores
A number that estimates how likely you are to repay. Widely misunderstood, and only loosely under your control.
A credit score is a lender's estimate of the probability that you repay. It is produced by a reference agency from the record of how you have handled credit, and lenders use it alongside information the score itself never sees.
What it is not
Different agencies hold different records and use different models, so the same person legitimately has several different scores at the same moment. A lender may also apply its own model entirely. A score you are shown is an indication, not a verdict.
It is also not a measure of wealth. Income and savings are typically not part of the score, which is why someone with substantial assets and no borrowing history can score poorly.
What generally moves it
- Payment history. Whether you paid on time, consistently. Usually the largest factor.
- Amount of credit used relative to what is available. Using a high proportion of a limit tends to count against you even if you repay in full.
- Length of history. A long record of unremarkable behaviour is worth more than a short clean one.
- Recent applications. Several applications in a short window can read as distress.
Why it matters beyond borrowing
Because the score affects the rate offered, and the rate compounds. The same mortgage at two different rates produces substantially different total cost over decades, and the difference is decided partly by a number most people never examine.
Behaviour that improves a score — paying on time, borrowing modestly relative to limits, keeping accounts open — is mostly behaviour that is sensible anyway. Chasing the number itself tends to produce odd decisions that serve the metric rather than the person.