How do credit scores work: A guide to credit reference agencies

June 5, 2024

The first step in understanding how to build your credit score is understanding how credit reference agencies work and the role they play in the UK's financial landscape.

In this article, we'll take a deep dive into what credit reference agencies do, who the main players are and how they measure credit. We also provide some useful reminders about building your credit score.

What is a credit reference agency?

Credit reference agencies (commonly called CRAs) are companies that collect and maintain financial credit information about both people and businesses. CRAs pull data from all kinds of sources such as lenders, public records, and utility companies. This data is then used to form a thorough credit report and associated score for individuals and companies.

The main function of a CRA is to give credit information to entities like lenders and landlords to allow them to make decisions about whether applicants are worthy of being granted credit.

Put simply, they tell them how much you can be trusted with finances to help them decide whether to give you credit, allow you to rent a property or take out a finance agreement,

By using fair metrics to assess credit scores, CRAs help facilitate responsible lending, as well as decrease the perceived risk from a lender's point of view. They also allow people to access credit on reasonable terms based on their track record of being financially responsible.

What are the main 3 credit reference agencies in the UK?

Three primary CRAs are operating in the UK. And if you've ever checked your credit score chances are the result you got was from one of these:

Experian: Headquartered in Dublin, Experian is a major credit reference agency in the UK. They offer credit reports and scores, as well as other related services to people and businesses allowing them to manage their credit profiles. Experian fair credit score uses the FICO® Scores 2, 4 and 5 credit score model.

TransUnion: Formerly called Callcredit, TransUnion is another main credit reference agency in the UK. They offer extremely similar services to Experian to individuals and companies. Transunion uses the VantageScore® 3.0 model.

Equifax: Headquartered in Atlanta in the US, Equifax is the third major credit reference agency and operates globally. Equifax also uses the VantageScore® 3.0 model.

We'll take a look at what these models mean in the next section but don't worry too much. While they differ slightly in their approach and there are multiple versions of each, good credit scores with one generally mean good scores with another.

How do the credit agencies measure credit scores?

If you're sitting wondering how do credit scores work, in simple terms, CRAs pull data from multiple sources and use special algorithms to work out your creditworthiness.

This can involve information on credit accounts, repayment history, outstanding balances, credit inquiries, and any adverse financial events like defaults or bankruptcies.

Once they have pulled this information from entities like lenders and financial institutions, here's a breakdown of the process that should help you on your way to understanding credit scores.

Credit score models

The three main CRAs tend to use one of two popular models, these are FICO and VantageScore. To have a credit score with the FICO model, you need to have at least one account that's been open for six months and has reported to credit bureaus in that time.

FICO sections the information we outlined above into five categories. Each one represents a percentage of your total score.

  • Payment history: 35%
  • Amount owed: 30%
  • Credit history length: 15%
  • Any new credit: 10%
  • Credit mix: 10%

VantageScore uses six primary categories, but these aren't weighted in the same proportion as FICO. The categories are:

  • Payment history: Very important
  • Percentage of credit limit used: Important
  • Age and type of credit: Important
  • Total balances and debt: Considered
  • Available credit: Less important
  • Recent credit behaviour and inquiries: Less important

It's important to note that VantageScore can score customers who are fairly new to building credit and use it infrequently. This makes it a good way to track your credit building.  

Credit score range

Credit scores in the UK normally range from 0 - 999, though the specific numbers will vary between CRAs. Experian, for instance, uses a range of 300 - 850. The higher your score, the lower your 'credit risk', making it easier to get credit.

Credit score interpretation

Each CRA will guide how to interpret a score based on their model. For example, a score above a predetermined figure could mean 'excellent' indicating a low risk for the lender. In contrast, a score that falls below a certain figure will mean 'poor' and will make getting credit more difficult.

Credit score updates

Credit scores aren't static and will change over time based on your credit behaviour and any new information reported to the CRA. Keeping track of your score allows you to monitor this and take steps in the right direction.

Why does my credit score differ?

Your credit score can differ based on the credit reference agency being used to make the check. The reason for this is down to a few factors, including:

  • Data sources: Variations in the completeness or accuracy of the data that CRAs use can lead to discrepancies in scores. Some lenders might only report data to one CRA whereas others may give reports to all of them.
  • Scoring models: As we've discussed, different CRAs use different scoring models to calculate scores. The differences in these models and the algorithms used will lead to variations in the final score.
  • Data processing methods: CRAs might use different data processing techniques to evaluate the information they've collected and generate a credit score. Variations in statistical techniques can also contribute to differences in scores.
  • Score ranges and categorizations: Even if the data and scoring models are similar, different CRAs have different ways of interpreting data and use bespoke scoring systems and categorisations. As well as different ranges (e.g 0 - 999 vs 300 to 850) CRAs can have varying thresholds for what counts as 'poor' or 'excellent'
  • Updates and frequency: CRAs can update their scores at different intervals as and when they receive new information or change their internal processes. Varying scores often happen when one CRA receives information before another.

Overall, while the score itself might differ between different CRAs, they all do the same job of assessing your creditworthiness and will tend to give similar results if you have a long enough credit history.

It's still a good idea to check your credit with multiple CRAs to ensure accuracy, as any glaring differences might mean there has been an error. You can then request that the CRA take a look into this.

A reminder of how to build your credit score

Now you understand the answer to how do credit scores work, maybe you’d like a recap of how to build your credit score…

It might seem obvious, but one of the best ways to build your credit score is to make payments on time. Your payment history is one of the main factors affecting your credit score, so paying bills, credit card payments, and direct debits on time is crucial.

You can also register on the electoral roll, make credit applications (hard checks) less often, and make sure you aren't financially associated with somebody else with bad credit.

If you haven't had much credit history or can’t get a credit card, one of the best options is to get a bank account with no credit checks.

Pockit's Fast Track to Credit is an amazing way to start building your credit score quickly, and you can open an account in just 3 minutes.

With our credit builder, you get access to personal credit in as little as 3 months, and you'll never get hard credit checks that can damage your credit score.

All you need to do is make small monthly payments of £9.99 on time. This gets reported to the main CRAs each month to start building credit fast. You'll also get cashback rewards and can borrow up to  £500 after 3 months with 0% interest!


Will checking my credit report lower my credit score?

No, credit reports are what's known as 'soft checks' and won't hurt your score. However, 'hard checks' done by lenders when you apply for credit can have a temporary effect, so it's important not to apply for credit too often in a short space of time.

How often should I check my credit score?

We recommend that you check your credit score at least once yearly. There's no reason not to as you can get free reports online. Checking more often is a good practice if you're trying to build your credit score.

What information do credit reference agencies hold about me?

CRAs hold your personal information, including your full name, current and previous addresses, financial associations, and electoral roll status.

They also hold information on any county court judgements (CCJs) or bankruptcies, as well as your credit information like money owed, and how many applications for credit you've made.

What do I do if I think there has been fraud after seeing my credit report?

If something on your credit report makes you think you've been the victim of fraud or identity theft, you can ask the main three CRAs to put a freeze or fraud alert on your credit history file.

This alert will mean you have to be contacted personally for any credit applications in your name. You should also notify the police if you have hard evidence of fraud on your credit file.

Once the problem is stopped you should contact the CRAs to ensure there is no incorrect information or activity on your credit file.

Does student loan affect credit scores in the UK?

Lenders may consider student loans when considering whether you can take on more debt. However, repayments will not count towards your credit score.