Your Credit Score Explained

Most of us know we have a credit score, and that a higher score generally means you have a better credit rating. But, if you’ve been looking to have your credit score explained in more detail, you probably haven’t had much luck. Until now. What goes into a credit score and how it’s calculated has been jealously guarded by Credit Reference Agencies, and a credit score explanation seemed a long way off. But, we’ve done some digging — so you don’t have to. Take note: this credit score explanation only applies to credit scores calculated by TransUnion, the Credit Reference Agency that provides the data we need to create your credit report. There is no universal credit score. What makes up your credit score with Experian and Equifax (the other two Credit Reference Agencies) will be different.

What goes into a credit score?

Payment behaviour explains 48% of your credit score

our payment behaviour comprises 48% of your credit score — the largest contributing factor. Your payment behaviour includes:

  • On-time payments
  • Late payments
  • Missed payments
  • How recently you missed payments or paid late.

All this is evaluated across all your credit accounts. If you’ve had or currently have problems with paying reliably, it will likely have the most damaging effect on your credit score. Your payment behaviour makes up nearly half of it.

Credit usage explains 21% of your credit score

Your credit usage comprises 21% of your credit score. Your credit usage looks at all your credit accounts — including credit cards, overdrafts, mortgages, and loans — and considers:

  • The amount of credit available to you
  • How close you are to your limits

As a rule, it’s best to use less than 25% of your total credit limit. Carrying a balance of more than a quarter of your total available credit can see your credit score drop by some points. Once you reach 50% of your total credit limit, you credit score can fall considerably. It suggests you’re struggling to manage the credit you have, and makes lenders cautious about letting you borrow more.

Credit experience explains 21% of your credit score

Your credit experience comprises 21% of your credit score. Your credit experience includes:

  • What credit accounts you’ve opened
  • When you opened them

Your credit experience refers to the amount of credit history you have. For example, if you’re new to credit, there won’t be much evidence of your experience using it. This could explain why your credit score is on the low side. Experience using an array of credit products sensibly over a longer time suggests you know how to manage credit, which can increase your score.

Desire for credit explains 5% of your credit score

Your desire for credit comprises 5% of your credit score. Your desire for credit includes:

  • Your credit account openings
  • When account openings happened

If you’ve recently opened a few new credit accounts, it could make Credit Reference Agencies think you’re eager for credit. Your credit score may drop for this reason. On the other hand, if you’ve closed old credit accounts, your credit score may improve.

Types of credit explains 5% of your credit score

Your types of credit comprise 5% of your credit score. Your types of credit can include:

  • Overdrafts
  • Loans
  • Credit cards
  • Mortgages
  • Mobile phone contracts
  • Utility bills
  • Finance agreements (such as buy now, pay later)
  • Gym memberships

If you have a good reputation for managing different types of credit, it can help improve your credit score. For example, if you’ve taken out a loan, you’ll often pay this back in fixed, monthly installments. Using a credit card, on the other hand, will have different monthly repayments, depending on how much you spend. It shows lender you’re capable of handling different credit products and can be trusted to handle more, which can improve your credit score.

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