What is a good credit score in the UK? It depends on many factors, including your age, income, debt levels, and history of paying bills on time.
Understanding your credit score is an integral part of managing your money.
It affects significant financial commitments such as mortgages and minor transactions like cell phone contracts and vehicle insurance.
In this article, you’ll learn what a good credit score is in the UK, how credit works, and how scores range from one credit company to another.
What is a credit score?
A credit score is a numerical representation of your financial history, which forms your credit record.
Lenders use your credit score number to determine whether or not to give you a loan.
Lenders use different methods to calculate scores, so it’s important to understand what yours is based on.
The higher your score, the better chance you have of getting approved for a loan or advance credit.
The lower your credit score, the less chance you have of being approved for a loan.
What is a good credit score used for?
When you think about your credit score, consider it your “financial CV’ where financial institutions reveal personal information relating to your credit risk.
This information is updated regularly and kept for a maximum of six years.
A simple definition is that a higher credit score means a good credit score, and a lower credit score means a bad credit score.
Understand the Basics of What is a Good Credit Score in the uk
If you want to buy a home, take a car loan, or make other big purchases, you’ll need a high credit score. This means having an average of 700 or higher.
However, there’s no set number of points that make up a good credit score.
Instead, it’s based on your payment history, length of credit history, and type of credit used.
Why Should I Care About My Credit Score?
1. You pay less on interest charges:
When you apply for new credit, the representative APR (annual percentage rate) you pay is determined by your credit score.
A high credit score will help you qualify for lower interest rates when you borrow money.
Lenders use your credit score to determine whether you’re a safe bet to lend money to.
A bad credit score means you are likely to have higher interest rates.
When you have a higher credit score, you will be able to get the best deals on goods, lower interest rates, and a higher credit limit, which will allow you to borrow more money.
A good credit score will help you get approved for a mortgage when you have financial goals like buying a home.
You’ll also need a high credit score to qualify for other loans such as car loans, student loans, and personal loans.
2. Show creditors how much debt you have
They also use it to see how much debt you have. This helps them decide whether you’ll repay the loan as well as if you are taking on more debt than you can afford to pay back.
3. It Shows how well you have managed past debts
You want the lowest possible interest rate, especially for credit cards, personal loans, mortgages, car finance, etc.
You must demonstrate to lenders that you can take on debt and manage it well to be trusted with more debt in the future and receive reduced interest rates.
In the interest of creditors, you borrow money, incur debt to purchase goods or services, and then pay it back on time to demonstrate that you are responsible with your money. You can use the 50/30/20 rule for budgeting, where you allocate 20% of your income after tax towards paying more towards debts.
Where can I find my credit score, and who are the major credit reference agencies?
Your credit score is available from any credit bureau or reference and is stored online.
You can check your own credit report at any time.
Understand the Factors That Affect Your Credit Score so that Equifax, Experian, and TransUnion (AKA Credit Karma) are the three major credit bureaus in the United Kingdom.
Surprisingly, each credit bureau has its scoring model.
Annoyingly, they provide different information about your financial situation and credit risk.
The problem is that because they all report differently, you may need to look at more than one report to get a complete picture of your credit situation
Which lenders look at my credit score?
Lenders who give you products and services with a line of credit in advance of payment are those who are interested in your credit score.
- Credit card companies,
- Insurance companies
- Mobile phone contract providers
- Utility bills such as gas and electricity providers
- Bank accounts
- Hire car purchases and car loans
- Landlords and rental properties
- Mortgage lenders
- Employees (Government/Financial Services and Law Firms)
- You get the gist!
How credit score ranges
Different lenders have different credit scoring methods.
Overall, a high credit score is considered positive, whereas a low credit score is deemed to be negative. The credit score range between some major credit reporting companies is shown below.
- What is a good credit score UK Experian? Experian UK score ranges from 0-to 999.
- What is a good credit UK Equifax? Equifax UK has a range of scores from 0-to 700.
- What is a good credit score for Transunion: TransUnion has a range from 0-710
- What is a good credit score UK Clears Score? Clear score range from 0-700 (reports data from Equifax)
- What is a good credit score UK Check My File? Check My File ranges from 0-1000 (reports what all three agencies above report)
What is a credit score based on?
A variety of things influence your credit score.
There are eight main factors that determine your credit score:
- Your payment history,
- The amount owed
- Are you on the electoral register?
- If your personal information is correct Financial association
- Whether you pay bills, debts and loans on time
- How much is your credit utilisation
- How often do you take on new debt
- Length of time you’ve had credit.
What Are Some Tips To Help You Raise Your Credit Score?
14 Tips to Help You Improve Your Credit Score
1. Have a good, healthy Payment History
First, make sure you pay off any debts as soon as possible.
If you have an outstanding balance, try to pay it down every month.
2. Stay in control of the Amount owed
Keep your balances low. don’t charge purchases on your card until you’ve paid off the bill.
Don’t carry a balance on your cards.
Finally, don’t spend money you don’t have.
Lenders want to see that you can manage the debts you have by reducing them over time.
3. Get on the Electoral register
Electoral registration is one way the credit bureau verifies your name and residence and provides lenders with a sense of stability.
To enrol on the electoral roll, contact your local authority.
4. your Personal information
It’s critical to double-check that your personal information is accurate and up-to-date.
Ensure that any inaccuracies or unfavourable information are reported, as they may harm your score.
This can be as minor as a misspelt name or paid-off bills that are still shown as unpaid, as it will lower your score.
5. Review Your Financial associations
Your credit rating will be affected if you have financial ties with someone else, such as shared bank accounts or joint credit cards.
Recognise that the people with whom you have financial ties will impact your credit, either positively or negatively.
Remove any past associations, and avoid linking accounts with someone who has a poor credit score in the future, as this will lower your good score.
This takes into account your marital status and the people you reside with.
6. Paying bills on time
Avoid making late payments. Paying your bills and direct debit on time and in full, either before or on the due date, demonstrates to lenders that you can meet your credit obligations.
This covers bill payments, credit card debt, personal loans, and mortgage loans, among other things.
Late payments hurt your credit score and signal to lenders that you’re a risky borrower.
If you’re having trouble making payments, contact your lenders right away.
7. Manage your Credit utilisation
Lenders dislike it when you use up all of your credit, which means you should not use more than 30–50 per cent of your available credit or total debt. Going over your 30–50 per cent credit utilisation limit can significantly impact your rating.
Therefore, sticking within that range will help you improve your credit score, among other things.
8. Monitor How often do you take on new debt?
Limiting the number of credit inquiries, new credit accounts you open, and how often you open a new credit card plays a significant role in measuring your credit.
Every time you apply for a new line of credit (auto insurance, a cell phone contract, a loan), your credit score suffers.
If you do this too many times in a row, potential lenders will become suspicious and this will have a negative effect on your credit.
9. Analyse Length of your credit history
Lenders prefer to see that you have a good credit history, demonstrating that you are trustworthy and have a good understanding of debt management.
Older credit card accounts appear to be more trustworthy than new accounts.
For example, keeping an old credit card account is preferable to cancelling it and opening a new one.
You can improve your rating by using your credit cards frequently and paying them off in full each month.
10. Fix Errors on Your Credit Reports
If you find errors on your credit report, contact the three major credit reporting agencies (Equifax, Experian, and TransUnion) directly. You can also file disputes with them online.
11. Monitor Your Credit Scores Regularly
It’s important to monitor your credit scores regularly so you can make any necessary changes to improve them.
You should check your credit report at least once per year to ensure that there aren’t any errors or inaccuracies.
If you find something wrong, contact the credit reporting agency immediately.
12. Learn About Hard Inquiries
You might not think much about your credit report when applying for a loan, but it plays a huge role in determining whether you get approved.
That’s because lenders use your credit score as a factor in deciding whether to give you a loan.
So, if you’ve had any hard inquiries (a negative event) on your credit report, it will lower your credit score.
13. Avoid Bad Credit Behavior
If you want to improve your credit score, there are some things you should avoid doing.
Don’t apply for too many loans at once. This will make it harder for lenders to evaluate your creditworthiness.
Also, don’t close accounts that you still owe money on. It makes it seem like you’re trying to hide something.
Finally, don’t miss payments on existing debt.
Lenders will see that as an indication that you won’t pay back other debts.
14. Know When You Need To Pay Off Debt
There’s no magic number when it comes to your credit score.
However, having a high score is better than having a low score. So, if you want to improve your score, focus on paying off any outstanding debt.
15. Use a credit builder credit card if you have bad credit
If you already have bad credit and want to improve it, using a bad credit credit card is one of the best ways to demonstrate responsible use of a credit card.
The only thing to look out for is you are likely to be paying a higher rate on a credit building credit card.
What Does A Good Credit Score Look Like?
Below is how each agency defines a good score.
You will see that each agency has a different reporting model, and therefore, you must understand ‘how and what they report to better understand your credit rating.
Experian’s credit score range from 0-999
Very poor: 0-560
Equifax’s credit score range from 0-700
TransUnion credit score range from 0-710
How often are credit scores updated?
Depending on the reporting agency, your score is updated every 30-45 days.
Each credit agency receives a report from your lenders.
This, in turn, is updated in your credit file to reflect the information provided.
You can call your credit agency to determine when your file is updated for a more accurate time frame.
How to check your credit rating for free
Reviewing your credit report information should be performed once a year at the very least.
Companies like Clear score, which get information from Equifax, offer free monthly reporting.
Free credit scores are provided by most credit agencies in the UK, which offer a 14-30 day free trial period.
Many people acquire a free copy of their credit report once a year to see what information each company holds about them.
The main disadvantage is that each credit reporting agency produces separate data, making it difficult to keep track of your progress.
Moneysaving Expert and, more lately, banks have started to provide credit score features to their consumers.
Another disadvantage is that you have no control over who your lenders should send your data to, so you may be missing critical information on your credit report if you stick to one reporting company.
While you may think it will require some work and tracking, it’s worth the time. There are tools to help you improve and track your credit score.
How not to build your credit rating!
Building credit isn’t the issue; it’s how people go about doing it.
Taking out a credit card or an overdraft to establish credit may not be the best option if you have trouble managing your money daily.
Instead, you might continue to pay your bills on time, learn how to budget, and keep your existing credit at 30% utilisation.
It’s a wrap
In conclusion, it’s important to understand what a good credit score looks like, so you can work towards achieving one.
Personal finance is heavily reliant on credit.
This blog post has taught you how to completely comprehend the credit system and take charge of your credit score.
If you want to improve your credit score, there are several things you can do. You should pay off any debts as soon as possible, and make sure you keep your balances low.
Paying bills on time is another way to boost your score.