A credit score is a three-digit number used by lenders to help them decide how likely it is an applicant will pay back the money they borrow. Before we get started, it’s worth clarifying that you do not have one universal ‘credit score’. It’s true that most organisations will use similar factors to determine a customer’s credit score. However, every lender and credit bureau will have their own rules and scoring systems.

The credit scores you can see online are designed to give you a general idea of your credit score. They’re purely illustrative and should only be used to help give you an idea of ways you could improve your score. The scoring systems used by lenders are designed to meet that lender’s criteria for that specific product.

In this guide, we’ll look at what lenders typically look for in an applicant, and how they use credit ratings to help make their lending decision.

What do lenders use a credit score for?

A personal loan provider will use credit scoring to assess the specific risk of an application, such as the chance of a customer defaulting on their repayments. It’s ultimately used to ascertain which applicants to accept, and what rate to offer.

Typically, a lender’s scoring system is developed by looking at the past behaviour of previous customers. If your credit file looks like the credit file of customers who’ve defaulted on their payments in the past, it’s more likely you’ll be predicted to be a risky customer. Of course, this is all done using statistical techniques and advanced technology – scoring systems are never calculated by individual people to ensure results are free from human bias.

The way lenders score applicants is confidential, so there’s no real way to understand what elements of your credit report will make the biggest difference to your application. However, the following factors are most likely to impact your score:

• How you’ve managed debt in the past (i.e., whether you’ve made late payments or missed them altogether)
• Recent financial circumstances (whether you’ve recently taken on more credit, are maxing out your current credit limits or you’re evidently applying for credit with numerous lenders)
• Levels of debt (how much debt you have compared to the income you have coming in, for example)
• Personal circumstances (whether you’re on the electoral roll, how long you’ve had your current account, how long you’ve lived at your address etc)