How does a credit score work?

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Apply for a phone contract, a credit card or a mortgage, and somewhere in the background a lender looks at your credit history and often a score built from it. A credit score is not a measure of your worth or your wealth. It is a guess at one thing: how likely you are to repay borrowing on time. This guide explains the idea in plain terms. Credit systems differ a great deal between countries, so treat it as a general picture and look up how things work where you live.

Your credit file comes first

Before there is a score, there is a record.

A credit file or report lists your borrowing: cards, loans, mortgages, sometimes phone contracts and utility accounts, how much you owe, your limits, and whether you have paid on time.
It may also hold public records, such as court judgments or bankruptcy, depending on the country.
Credit reference agencies or bureaus collect this information from lenders. Some countries have several private agencies; others rely mainly on a central register run by a public body.

The score is a summary

A credit score is a number calculated from your file to predict risk.

Different organisations use different scales and formulas, so the same person can have different scores from different providers. A number from one agency cannot be compared directly with another's.
Lenders often use their own scoring too, combining your file with what you tell them on the application, such as income.
There is usually no single pass mark. Each lender decides what it will accept.

What tends to help or hurt

The exact formulas are not public, but the broad principles are similar in most systems.

Paying on time is usually the most important thing. Missed and late payments can weigh on your record for years.
How much of your available credit you use. Running cards near their limits can suggest strain.
Length of history. A longer record of handling credit well gives lenders more to go on.
Recent applications. Several applications in a short time can look like a warning sign.
Serious problems, such as defaults or insolvency, have the biggest negative effect.

Common myths

Checking your own report does not harm your score. Looking at your own file is generally recorded differently from a lender's check for a credit application.
Having no credit history is not the same as having a good one. People new to a country or new to borrowing may find it harder to get credit at first because there is little to assess.
Income is not usually part of the score itself, though lenders will consider affordability separately.
Your partner's or flatmate's record usually affects you only if you have joint finances, such as a joint account or loan, though rules vary.

How to build or repair a record

Pay every bill on time. Setting up automatic payments for at least the minimum amount is a simple safeguard.
Keep balances well below limits where you can.
Space out applications, and use eligibility checkers where available, which often show your chances without a full search.
Register to vote or confirm your address where that is used to verify identity, as it is in some countries.
Check your report for errors such as accounts you do not recognise, and ask the agency to correct them. An unfamiliar account can also be a sign of identity fraud.
Be patient. Negative marks fade in importance as time passes and new, good records build up.

Be wary of quick fixes

Services promising to wipe your record or boost a score instantly for a fee should be treated with suspicion. Free official routes to see your report usually exist, and free, independent debt advice is available in many countries if you are struggling. Have a question about credit records where you live? Share it in the comments.