The UK's largest credit reference agency Experian has changed the way it calculates people's credit scores – meaning many scores suddenly dropped or increased overnight. We've had many people contact us about this, yet the big picture is you don't need to worry – this doesn't impact how lenders will assess you.
Our Q&A below explains exactly what's happened, who's likely to be most affected and what the change means.
Q. What is this credit score?
Credit scores are a product sold by credit reference agencies, such as Experian, to give people an idea of how their finances stack up, and an indication of how likely providers are to lend to them.
Far too many people pay too much attention to them. They are NOT the same as what companies think of you – merely an indication of your general credit worthiness.
See our Credit Scores and What Your Credit Score Really Means guides to find out more about credit files and scoring.
Q. How does my score impact whether I'll be accepted by a lender?
It doesn't. It's just a product sold by credit agencies – it is not something used by lenders to assess you – so don't be overly worried by the change.
In the UK there is NO universal credit rating or score and there's no blacklist of banned people.
Instead, when you apply for credit, lenders assess you based on your application form details, past dealings they've had with you and the information on your credit files.
They then plot this against their own wish list of what type of customers they're looking for.
The credit scores the agencies sell you don't have your application form details (which include your income), nor your past history – and nor do they take into account what different lenders look for.
However, they can be useful as an indication whether in general you're likely to be lent to.
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Q. What does the credit score number mean?
The higher the score, the lower a risk the credit reference agency is assessing you as. 999 is the maximum, anything from 881 is good, anything between 71-880 is fair, below that is poor.
Yet even if you get a perfect score, as this is just an indication as explained above, you can still be rejected. Also, lenders' assessments are as much about 'will you make the lender money?' as it is about risk.
Even if you've a perfect credit score or you've never missed a payment, you may be rejected as the most profitable customers are those perpetually in debt, never defaulting, but always meeting the minimum repayment.
Q. What has Experian changed?
Experian updated its credit scoring process on Sunday 8 November, which resulted in some people's scores suddenly dropping or increasing.
It says it's done this as lenders constantly review and update their lending criteria. We asked Experian exactly how it calculates scores – it says that information's "commercially sensitive", though it did say each score's made up of 13 different elements.
Q. What has changed in its scoring?
According to Experian, it changes the way it calculates its scores every now and then to make sure they're closely aligned to the scores of individual banks and lenders. It says the key changes this time round are as follows:
- It's no longer as harsh on people in debt.
Some lenders are no longer scoring as harshly if you just happen to have large debts – and Experian is now trying to reflect that. This debt is the total debt owed across all your credit accounts, excluding mortgages.
- It's no longer as harsh if you owe more than a year ago. Previously it would have been viewed negatively if you owe more money this year than you did for the same period last year. Experian adds that it's now looking more at how well people manage and pay their debt, not just that they have debt.
- It's now tougher on those making late payments or who have defaulted or have CCJs. If you've fallen behind with payments, defaulted on any accounts, or have 'Public Record Information', such as a CCJ, bankruptcy or Individual Voluntary Arrangement (IVA), even if it's settled, this information is detailed on your credit file for six years. These are now weighted more negatively.
Paying on time and in line with the agreed credit repayment terms isn't weighted any differently following the update.
Q. Should I worry if my credit score's dropped?
Concerned readers contacted us when their scores changed:
- Adrian emailed us saying: "I discovered when I checked my credit file with Experian that it had changed its method of calculating scores. My score went from 642 to 512 – 'very poor' – overnight on the same information."
- Steven also emailed us: "I've been working on increasing my credit score for a while now as I'm looking to sort a mortgage by December. However, I have some defaults from five years ago which I cleared. My Experian credit score suddenly dropped by 107 points for no apparent reason."
However, Martin Lewis, founder of MoneySavingExpert.com, says:
"Don't panic. In reality nothing has changed at all. It's just Experian attempting to better replicate the process lenders go through to decide if they'll lend to you. Remember, this credit score is not what lenders use, it's just based off the same information as they use.
So in practice nothing's changed. However, if your score has dropped, it's an indication that you could do with doing some credit file management to see if you can improve it."
Q. Does the recalculation affect MoneySavingExpert.com's Eligibility Calculator?
MoneySavingExpert.com's Eligibility Calculator uses lenders' individual credit policies to determine eligibility, and does not use the score credit reference agencies give you. So any change to your credit score directly as a result of Experian's recalculation will not directly affect the eligibility rating given by our calculator.
You can use our calculator to check how likely you are to be accepted for a credit card or loan without it impacting your credit score.