If you’re trying to understand the meaning of a credit score of 4, you first have to understand what credit scores are and how they work. You need to know what is considered to be a good score versus a bad one, why a high score matters, how to get a credit score and build a payment history when you don’t have one, the factors that make up your score, types of scores, plus, how to find out and improve your score. Read on to find out everything you need to know.
What is a credit score?
A credit score is a number used by lenders to get an idea of the risk of approving your mortgage, loan, or credit card. It usually consists of three digits with the lower and upper numbers depending on the credit reference agency.
In the United Kingdom, there are three main credit reference agencies: Equifax, Experian, and TransUnion. They all operate similarly to record and evaluate data for the purpose of forming your score. All three report credit scores similarly, with each using different ranges:
- The Experian credit score ranges between 0 and 999
- The Equifax free credit score can be between 0 and 1000, however, they used to only reach as high as 700
- The TransUnion credit score range is from 0 to 710
What is a good credit score?
Depending on your credit reference agency, what is considered a good score can vary greatly. One thing that remains the same for each is that a higher score is better. In all three, you should try to keep your credit score at least in their good ranges.
Comparatively, Equifax considers 531 to 670 as being good, 671 to 810 as being very good, and 811 to 1000 as being excellent. In contrast, Experian considers 881 and above to be good while an Experian credit score of four would be highly undesirable. TransUnion, which has a significantly lower limit, considers 604 and above to be good. If you’re wondering what does a Transunion credit score of four mean, you need to know that it would be considered very bad.
For each of these credit reference agencies, you’ll want to aim for your credit score to at least be in their good range, but try to reach very good or excellent if you can. In summary, the highest credit score in the UK is 1000.
What is a bad credit report?
If your credit report is below the good range, that’s not optimal. Fair credit scores fall below good credit scores, but are not classified as poor. Experian considers 721 to 880 as being a fair score, Equifax considers 380 to 419 as falling in that category, and TransUnion categorises 566 to 603 as being fair.
If your score falls below the classification of fair, it is considered to be a poor score. Some credit reference agencies further split this classification between poor and very poor, while others consider anything from 0 to the minimum requirements for a fair score to be poor. Specific classifications are as follows:
Equifax places 0 to 438 as poor. TransUnion places 0 to 550 as very poor and 551 to 565 as poor. Lastly, Experian classifies 0 to 720 as being poor.
Having a fair or poor credit report may be a detriment to you in a few ways. And having a good credit report is important for many reasons.
Why a high score matters
You may wonder why it is important to have a high credit score and there are several good reasons to strive to achieve this.
With a high credit score, you are more likely to have your mortgage, loan, and credit card applications approved because lenders will see you as being a less risky customer who is more likely to pay off their mortgage, loan, or credit card.
When applying to rent an apartment or home, landlords will be less likely to approve you if you have a low credit report. Having a high credit report and good financial history will show that you are likely to pay your rent and increase your chances of being approved.
When borrowing money, interest rates are inevitable, but a good credit score can save thousands of dollars over time. You may be given lower interest rates if lenders think you’re low risk, and having a high credit score is a key factor in their judgement of how likely you are to pay back borrowed money.
With a high credit score, you can also avoid needing a security deposit on utilities and some cell phone contracts. Whereas if you have a low credit score, companies may see it as a risk to provide you with their services without a sizable security deposit.
You may have come across information explaining that you can even get lower rates on car insurance by having a good credit history. However, this is primarily applicable to people living in the US and doesn’t apply to those in the UK or Canada, for example.
If you have a bad credit history, you’ll be seen as a high-risk applicant to lenders, landlords, or insurance companies which can cause you to get worse deals. This is why having a great credit score is important and can save you massive amounts of money.
How to get a credit score if you don’t have a credit history
With the importance of a good credit score, you may wonder how to get one. Here are four things you can do to get a credit score and payment history if you are starting out with no credit history:
1. Open a bank account and use it responsibly
Although opening a new account may lower your score temporarily, over the long term, having older, established bank accounts that you use responsibly and that have a healthy payment history can actually help make your credit report look better.
2. Obtain a credit card
While there are risks to having a credit card, such as sky-high interest rates, there are also benefits if you use them strategically. Only spend what you can afford to pay off in full each month – that way, you avoid the downside of high interest rates, but get the benefit of building a credit history.
3. Get on the Electoral Roll
Getting on the electoral register establishes you as a real person – it increases the legitimacy of your claimed identity, which benefits your score once it becomes established.
4. Set up automated, direct debit payments for your bills
As you’ll find out later, an important factor in getting a high score is to pay your bills on time. By setting up automated payments you can remove the risk of forgetting to pay your bills and start building a high score today!
5. Use a credit builder credit card
If you’ve got a low score or none at all. It might be better to start with a credit builder card rather than a regular credit card. They are easier to get, but do have some downsides that include a low credit limit and high interest rates. When first obtained, they’ll cause a short term drop in your score, but nonetheless, they can still allow you to build up a better score over time. When getting a credit builder card it is important to stay well below its credit limit while still using it regularly, and always paying it off on time. With their high interest rates you could potentially end up having to pay a lot more money if you are late in paying it off.
Last, but not least, it’s important to keep in mind that you have to be at least 18 years of age in order to start building your score.
What are the factors that make up your score?
Credit reference agencies don’t often specifically state how important individual factors are in relation to each other, but there are several known things that contribute to your score.
- One important factor is your payment habits. If you have a history of not making payments on time or, worse yet, missing them entirely, your score will decrease. However, regularly making payments when they’re due can affect your score positively.
- Your credit card history can influence your score both positively and negatively. Nearing your credit limit and/or not paying back the money you spend on your credit card will not have favourable results on your score.
- Credit reference agencies will also want to see that you’re registered to vote so they can verify your address and validate your identity.
- Bankruptcy can have a massive effect. Filing for bankruptcy or being declared bankrupt can cause a sharp decrease in your score.
Types of credit scores
There’s a separate score from each of the credit reference agencies, plus many lenders create their own score for you via data that they gather from these organisations. They’ll usually base these scores on information found from one, two, or all three of the major agencies.
How to do a credit score check
Now that you understand how credit scores work, you’ll probably wonder where to find yours. As you know, there are three different credit reference agencies, each using their own system for creating and evaluating these scores.
Types of Credit Checks
There are several free options (including some free trials) for checking your score:
- ClearScore gives access to credit scores for free, using Equifax data. They update their reports on credit scores on a weekly basis.
- Credit Karma is where you can find your TransUnion score, updated weekly for free.
- Experian allows you to open a free account to view your score from their data. It’s updated monthly.
- In a free 30-day trial you can check your scores from all three major credit reference agencies through CheckMyFile.
- Equifax credit report gives a 30-day free trial to view your score and report from their site
- Experian also gives the option of viewing your full credit report from their data, but it is a paid option. However, you can get a 30-day free trial.
With a variety of options to get a free credit score check, which one is the best? There isn’t really a clear answer to that. The information provided by each of the three credit reference agencies will differ from one another, so it can be highly useful to check all three. Generally, if your score is in the good category for one, it is likely to also be for the others, but you can’t be sure. Some options also give full credit reports providing more information.
How to improve your credit score
It may seem intimidating trying to improve your score, but it can always be done. Whether your score is poor, fair, or very good, it’s always good to know how to increase it. There are numerous ways to do this, from verifying your identity to making payments on time.
Steps to raise your score
Here is what you need to know about raising your score:
When trying to improve your score, you should start by avoiding anything that lowers it. This includes missing payments or making them late, maxing out your credit card, facing bankruptcy, and opening multiple new credit accounts within a short time period. Going a while without making these mistakes will slowly negate their effects. Other than avoiding things that decrease it, there are several things you can do to cause your score to rise.
- Prove your identity and address. You can accomplish this by registering to vote which involves verifying your identity and place of residence.
- Don’t overuse your credit card. By staying far from your credit limit and regularly paying off your credit card you can increase your score. You should aim to always keep your credit utilisation below 25-30% of your credit card’s limit.
- Have a long credit history. Lenders will see you as less of a risk if you have a lengthy history. This takes substantial time for recent immigrants or young people, but it can improve your score.
- Make your payments on time. Simply making sure to make payments when they’re due can improve your score, and not doing this can decrease it. This is why it’s always important to keep track of when you have to pay your rent, bills, loans, mortgages, or any other recurring payments and make sure to pay on or before the due date.
- Avoid moving too often. Living in one place for a while can cause your credit score to rise, while moving frequently can do the opposite.
- You should always look for any mistakes on your credit report and report them to the credit reference agency. A small mistake can cause your score to be lower than it should be.
- Fraudulent activity can risk decreasing your credit scores if you don’t watch for it. If someone gains access to your credit information, they could massively drop your credit scores. If you see anything wrong with your credit report you should contact the credit reference agency. Something that can be done to prevent this from occurring is using strong passwords and not revealing any information that could lead to someone accessing your confidential credit information.
Making the right financial choices can cause your credit score to rise, which gets you many benefits that will improve your life and ability to afford the things you want.
Can I get a good credit score overnight?
Unfortunately, getting a good score isn’t something you can do instantly. It can take time for your score to increase, particularly if you have a negative credit history. But, over time things such as missed or late payments will have a decreasing effect on your credit score which makes increasing it easier.
If you make the decisions discussed above you can raise your score quicker. And remember, when you open a new bank account or obtain a new credit card, your score may temporarily decrease, but over time it will allow your score to improve if you use them responsibly.
Is a credit score of 4 good or bad?
With the information above, you have probably already figured out that a score of four would not be good. However, it is highly unrealistic that a score would ever drop that far. Depending on the credit reference agency it can vary as to what a good score is, but you should try to be in their good category.
Getting a good credit score isn’t complicated if you know how to do it
By understanding how credit scores work and knowing their uses, you can build up your credit score and payment history by making good financial choices and avoiding things that will decrease your score. Knowing about the three major agencies and how their scores work, as well as where you can see them, can allow you to monitor your score and make the right choices to maximise it. Once you achieve the high score you’re aiming for, you’ll save both money and time for as long as you maintain it.