Our credit scores play a vital role when it comes to our finances. Determining your creditworthiness and overall financial health can mean the difference between getting the loan you need and being turned away. As an essential aspect of financial health, your current credit score can impact how a lender assesses you, influencing your access to credit, more favourable interest rates, and the ability to achieve any financial goals you may have, such as owning a property. Maintaining a good credit score can be crucial for those looking to establish financial stability and demonstrate their creditworthiness to lenders.
Whilst they are crucial, you may not fully understand all there is to know about your credit score and credit report, and many may struggle to understand why their credit score is currently high or low. In this credit score guide, we’ll explain various important aspects to know and hopefully help with understanding credit scores more easily. You’ll find information about how they are calculated, what impacts your credit score, and how to access and understand your credit report.
What is a Credit Score?
A credit score is usually a 3-digit number that represents your credit history and creditworthiness to lenders and financial institutions. It’s provided by Credit Reference Agencies (CRAs) and enables a quick way for a lender to predict how likely you will be able to sustain your credit commitments and considers various factors such as payment history, outstanding debts, credit utilisation, how far back your credit history goes, and any recent credit activity.
Your credit score, or credit rating, is an indication of whether a lender should help you financially, with a strong credit score demonstrating your ability to manage your finances. Having a good credit score will help increase the chance of being approved for loans, credit cards, mortgages, and other forms of credit at favourable terms. Having a bad credit score may put a lender off from approving you for these products, which can also include mobile phone contracts and even landlords when looking to rent a property. It may also mean you do not have access to the best loan terms and interest rates available.
In the UK, your credit history provides a snapshot of your financial reliability to all major lenders, including high street banks and financial services, as well as online lenders. With a higher credit score indicating a much lower level of risk, many lenders in the UK who use automated lending systems may reject an application if it doesn’t meet a minimum credit score as defined by their internal processes. This means if you have a low credit score, whilst not impossible to get credit when you need it, your options may be limited.
How Credit Scores Are Calculated in the UK
Credit scores in the UK are calculated using a variety of factors, with all information coming from your credit report. Depending on the credit scoring models used by a CRA, the exact algorithms may differ, but common factors considered include the following credit report data:
- Repayment history
- Outstanding debts
- Credit utilisation
- Credit account types
- Length of credit history
- Recent credit activity
Your repayment history reflects whether repayments were made on time or if there are any defaults or late payments in your name. The amount of outstanding debt and the level of credit utilisation, which is the proportion of available credit you have that is currently being utilised, will also play a role in how you manage your debts. The types of credit accounts you have held, such as credit cards, loans, or mortgages, and the length of your credit history show a lender everything you’ve taken out since your first credit agreement. This along with any recent credit applications or enquiries all have a significant impact on the credit score calculation.
For this reason, you need to manage these factors responsibly to maintain a good credit score, as they influence lenders’ perceptions of creditworthiness and the likelihood of obtaining credit at favourable terms. If of course you have no credit history, and at one point we all were in this position, then this will mean it’s even more difficult for a lender to understand your creditworthiness. This can also negatively impact your credit score as having no credit history means a bigger risk for lenders.
Credit Reference Agencies in the UK
As mentioned, your credit score is provided by Credit Reference Agencies (CRAs) and there are 3 major ones that lenders use in the UK. These are:
- Experian
- TransUnion
- Equifax
Each agency uses its own credit scoring model, and whilst many may think they only have one credit score, you actually have 3 as each will score you differently and not all CRAs are used by every lender. CRAs are independent organisations that gather and analyse financial data to create credit reports and calculate credit scores for individuals.
They collect information from various sources, including lenders, banks, and other financial institutions, regarding your borrowing and repayment activities. This information is then used to create a comprehensive credit report that reflects your credit history and financial behaviour, and provide a credit score.
Lenders rely on these reports and scores when considering credit applications. The idea is that the information provided helps lenders make better-informed decisions, helping them manage their lending risks effectively. Whether you like it or not, CRAs have a lot of influence over how you’re assessed by a lender and whether they will help you.
Accessing Your Credit Report
Your credit report is a vital resource that you should check regularly as this will help to explain how your credit score has been calculated. You can access your credit report directly from each of the 3 CRAs by visiting their websites, and you will see plenty of information about you.
You only have to visit one to see your credit report, but you may want to see what information each CRA holds about you as the information may differ, whilst your credit score will also be different (more on this later). The good news is you have the right to request a statutory credit report free of charge from each agency, so it won’t cost you a penny to access all 3 reports. Many have 30-day free trials you can sign up for to receive a more comprehensive report, but this will then follow a paid for subscription. If you do sign up for free, remember to cancel before the end of the trial. Accessing your credit report will not impact your credit rating, so you can check as often as you want to.
To access your credit report, the CRA will need to verify your identity first. This is to ensure only the right person can access this valuable data and that you receive the correct credit report. You may need to provide your name, address, date of birth, and previous addresses if applicable and answer security questions based on your credit history. Once your identity is verified, you will be able to access your credit report and see all the information contained. It is usually available to download if you want to, but you will be able to view it on their website through your computer, tablet, or device.
You’ll see that the report is broken up into different sections to make it easier to navigate and review. Sections will include personal information, account history, credit agreements, and public records. It’s important to check for any possible inaccuracies on your credit report, such as incorrect addresses or accounts that you don’t recognise. These errors can be disputed and rectified by contacting the CRA directly. Hopefully, all the information is correct, but if for some reason it’s not, this can impact your credit score.
One good feature that many CRAs provide on the credit report is a summary of the factors impacting your current score. This provides a quick way to see what the positives are and what are the negative factors. There could be something there you weren’t aware of or didn’t realise was having a negative impact. You can then identify areas where you can improve your creditworthiness and financial health, taking steps to improve your score. It’s a good idea to periodically check your credit report, at least once a year, to stay updated on your credit status and address any issues promptly.
Understanding Credit Score Ranges and Ratings
Now that you can access your credit report, you’ll be able to understand why your credit score is either low or high. Each CRA uses a slightly different credit scoring model but all provide you with a 3-digit score. These are as follows:
- Experian – 0 – 999
- TransUnion – 0 – 710
- Equifax – 0 – 1000
As you can probably guess, the higher the number, the better your credit score. Each CRA uses credit score ranges to determine whether you have a good or bad credit score. These ranges are as follows:
- Experian – Excellent 961 – 999, Good 881 – 960
- TransUnion – Excellent 628 – 710, Good 604 – 627
- Equifax – Excellent 811 – 1000, Very Good 671 – 810, Good 531 – 670
If your score is within the ‘excellent’ or ‘good’ range, that is ideally where you want to be, as it shows to a lender you are a low risk and have a credit history that is overall in good health. Being in the excellent credit range helps you to stand out as an applicant and will provide more options when it comes to choosing a loan product.
What is a poor credit score?
The lower your credit score, the more you will be seen as someone with poor credit and a higher risk to lend to. If you are not in the excellent or good range, you will be in one of the following credit score ranges:
- Experian – Fair 721 – 880, Poor 561 – 720, Very Poor 0 – 560
- TransUnion – Fair 566 – 603, Poor 551 – 565, Very Poor 0 – 550
- Equifax – Fair 439 – 530, Poor 0 – 438
Being in this range can make it more difficult to get approval for credit with some lenders, as it reflects a credit history that has had ups and downs and presents you as someone that could be a high risk if they approve a loan or other form of credit.
Factors that Affect Your Credit Score
You may already have a good idea why your score is either high or low, but several factors play their part. Each CRA may look at the elements differently, but the following are some of the most important:
Payment History – how well you have been able to maintain repayments on time is a big factor. Whenever you miss a repayment, this will flag on your credit report and the more regularly it happens, the more impact it will have. Even if you always then pay any arrears within a few days, this is still recorded as a late payment. This is why it is important to sustain your repayments on time to show you are capable of managing your finances.
Credit Utilisation – the amount of credit that you currently use is an important factor when compared to how much is available to you overall. Credit utilisation indicates what percentage of your available credit you are using, so if you have a £1000 credit limit on a credit card and have used £200, this will represent 20% credit utilisation. The higher the percentage, the more of your available credit you have used and vice versa. Having a lower credit utilisation is seen as favourable for your credit score.
Length of Credit History – lenders will prefer to see a longer credit history that shows a consistent track record of responsible borrowing and repayment. The shorter your credit history, or lack of it, will represent more risk for a lender. Your credit score takes this into account, which is why it may be lower if your credit history is short.
Recent credit activity – any activity relating to applying for credit will impact your credit score. The more applications made in a short space of time, the more pressure this puts on your score, potentially lowering it. Making multiple credit applications close together is best avoided as it shows you may be reliant on credit.
Public records – the information held about you on public records will influence your score. Anything such as a County Court Judgment (CCJ), Individual Voluntary Arrangement (IVA) or bankruptcy will lower your credit score.
Financial Associations – anyone you have been financially linked to can affect your credit score, such as having a joint account or another type of joint credit agreement, such as a mortgage. If, for example, the other person has a poor credit history, this can affect your credit rating and vice versa.
Address history and electoral roll – having a full address history on your credit file is important as well as being registered on the electoral roll. This helps to confirm your identity and also your financial stability, so if there are any gaps in your address history and if you are not registered to vote, this may cause a lower credit score.
Building and Establishing Credit History
Having a positive credit history will put you on the path to having a good or excellent credit rating, helping you to apply with confidence when you need to borrow money. Having responsible credit usage will reflect well with lenders, so building your credit history over time will establish you as a trusted borrower. Of course, building your credit history can’t be done overnight, but you can start making steps towards this. One way to do so is to have a credit-building strategy in place so you know where to begin and how to move forward.
Open a Bank Account – if you don’t already have one, opening a bank account is a good place to start and establish your credit history.
Register on the Electoral Roll – you’ll want to register under your current address on the electoral roll if you haven’t yet done so. This is important too whenever you change address and move into a different council district, helping to ensure your identity.
Make Timely Payments – when you do apply for credit, ensuring that you make timely repayments in line with your credit agreement will build a positive credit history. Each successful repayment made will slowly build this.
Setup Direct Debits – if you have any bills that pay regularly, such as utility bills, it’s a good idea to set up direct debits to pay them. This helps to ensure payments are received by the lender on time, so as long as you have enough credit in your bank account, this will be paid. It will help to avoid you forgetting to pay on time too.
Obtain a Mobile Phone Contract – a common form of credit people have is for their mobile phones. As long as you can afford the repayments required, this can be a simple agreement to maintain each month that will help build your credit history.
Consider a small loan or credit card – to help build your credit history, and once you have a bank account, taking out a small amount of credit will help. If you don’t need a mobile phone contract, then a small loan or credit card with a low credit limit is a good place to start. It needs to be affordable, so as long as you can sustain the repayments required, this will add to your credit history.
Avoid Excessive Credit Applications – when building a credit history, you’ll want to keep the number of applications you make for credit to a minimum. Only apply for those you need so that it doesn’t show you are desperate to borrow.
Improving Your Credit Score
If your credit score is currently low, you’ll want to find some simple ways to start improving it. Not all will be a quick fix, but checking your credit report will help indicate what is currently impacting your score the most. It could be something simple such as repaying any arrears outstanding, but if you are in financial difficulties, this may not be something you can do in one go. Improving your credit score is an aim for many people, so where do you start? Here are some of the ways to begin your credit score enhancement:
Check Your Credit Report – this is the best way to see an overview of your credit rating and identify areas to improve. Review it carefully to also identify any errors or discrepancies that may be negatively impacting your score. If you find any inaccuracies, contact the CRA to resolve them.
Pay Bills on Time – consistently make timely payments for all your credit agreements, including credit cards, loans, and utility bills. Set up direct debits or reminders to ensure you don’t miss any payment deadlines if this will help.
Reduce Credit Utilisation – It’s recommended by CRAs to keep your credit utilisation below 30% of your available credit limit if you can. You could try paying more off of existing debts if you can afford to do so, and avoid maxing out any credit limits you have on items such as store cards or credit cards. This will help to lower your credit utilisation ratio and improve your score.
Clear Outstanding Debts – Ideally, if you can clear any outstanding debts and arrears this will improve your score. Paying off or settling these accounts demonstrates responsible financial behaviour which can positively impact your credit score over time. Consider speaking with your creditors to negotiate payment plans if needed.
Avoid Applying for Multiple Credit Accounts – whilst having a poor credit score, you should limit any new credit applications. Each application leaves a footprint on your credit file, potentially lowering your credit score temporarily, so avoid applying if you can help it. If you do apply, also avoid making multiple applications at once.
Use Credit Responsibly – you can manage your credit responsibly by using it regularly but sensibly. Making small, regular purchases on any credit cards you have, for example, and paying them off in full each month, can demonstrate responsible credit usage.
Credit Repair Boosts – some of the CRAs will provide features that can give your credit score a timely boost. Experian, for example, has the Experian Boost, where you can raise your credit score immediately after signing up and using Open Banking to connect your bank account securely.
Common Credit Score Myths
As you can imagine, many people want to maintain a good credit score or improve a poor one, so there can be lots of misinformation on what can and can’t help your credit rating. Here are some of the most common misconceptions and myths surrounding UK credit scores to be aware of.
- You can’t get credit with a poor credit score
The good news is, having a poor credit score doesn’t necessarily mean you can’t get credit. There are specialist lenders of loans for bad credit that will focus more on your affordability than your credit history, as long as you can sustain the necessary repayments.
- Your credit score is better by borrowing less
As your credit score reflects your credit history, if there is very little or nothing there for lenders to see, it becomes more difficult to predict the risk, lowering your score. You will need to have some form of credit activity either currently or in the past to improve your score, so having credit isn’t a negative. This needs to be balanced of course, as having too many credit accounts all being used and with high credit utilisation, will negatively impact your score.
- CRAs all use the same credit scoring system
As already mentioned, each CRA uses a different credit scoring system, so there isn’t one standard model. The structure is similar of course, with the aim to have as high a score as possible to be rated as having excellent credit. Lenders themselves will also have their internal systems they use when providing a credit decision, so the information contained within your credit report is an important factor for them.
- You can only access your credit report through a CRA
Whilst you can visit each of the CRAs to access your credit report, you can also use other companies to do so. Each has a partner website you can use to access your credit report which includes:
Credit Club (for Experian) – https://www.moneysavingexpert.com/creditclub/
ClearScore (for Equifax) – https://www.clearscore.com
Credit Karma (for TransUnion) – https://www.creditkarma.co.uk/
CheckMyFile (for all 3 CRAs) – https://www.checkmyfile.com/
- You could be living at a ‘blacklisted’ address or be on a credit blacklist
If you have moved to an address and the previous occupants had poor credit scores, this does not affect your credit score. It’s personal to you, so you won’t need to be concerned about living at a ‘blacklisted’ address. This is also the same for lenders as there is no credit blacklist that people can be added to. All regulated lenders will perform up-to-date credit checks when you apply so that they can check themselves whether you are eligible to lend to.
Credit Score and Loan Applications
Every time you apply for credit, whether it’s a new mortgage application or you are needing emergency loans to help with unexpected bills, credit checks will be performed by the lender. Many lenders will use a soft search of your credit file at first to check your eligibility for credit. This type of ‘pre-approval’ credit check does not impact your score or show on your credit file, so it is a good way for lenders to check whether you can move on to the next stage of the application.
A hard search will be performed once a lender establishes you have met the minimum requirements to apply alongside checking your affordability. This creditworthiness assessment is more detailed, so a hard search will show on your credit file and can affect your credit score. All FCA-authorised lenders must complete credit checks before deciding whether to approve credit, as not only does this minimise the risk for them, but also ensures you do not take on credit you cannot afford to sustain.
You may see no credit check loans offered by some lenders, but in reality, as this is an FCA requirement, credit checks must be performed. The risk of providing credit with no credit check is high for both a lender and the applicant, so it’s best to only use FCA-authorised lenders to avoid this. As previously mentioned, having poor credit is not necessarily an obstacle to getting approved, as long as you can prove a loan is affordable and sustainable for you.
Some high street lenders may use automated systems to filter through credit applications. This can mean that if you have a low credit score, you may not get past the first stage, which is why the lower your score, the fewer options will be available. Not all lenders do this, including us as we take a human approach to loan applications by manually assessing you. It’s a good idea when looking for credit to find lenders that can perform a soft check to begin with, as this will minimise the impact on your score if for any reason they can’t help.
Credit Score and Mortgage Eligibility
Buying a property is one of life’s milestones for many, and is one of the biggest purchases you’ll make. For this reason, most people will need a mortgage to do so alongside a large deposit. Mortgage applications are carefully reviewed and assessed by lenders as this type of lending represents a much higher risk for both the lender and the applicant.
Creditworthiness for mortgages will vary between lenders, but the higher your credit score, the more likely your application will be approved as you will present less of a risk and provide the lender with confidence you can maintain this long-term arrangement. However, just because you have an excellent credit rating doesn’t automatically mean you will be approved. Your affordability plays a vital role in whether a mortgage will be agreed, along with how much you can provide as a deposit towards the property value, reducing the amount needed to borrow.
The better your credit score, the more mortgage options will be available to you, helping you to access the best mortgage deals with potentially lower rates of interest. The lower your score, whilst not impossible to get a mortgage if you can afford it, means you may have fewer options available and less favourable interest rates. If your score is very poor, it may be more likely your application will be declined. It’s a good idea to check your credit report if you are planning to get a mortgage in the near future and speak to a mortgage advisor to get advice on what can help your application.
Credit Score and Credit Card Applications
Credit cards have always been a popular way to access credit. As they provide a credit limit, you can make payments within this and then pay off the balance or the minimum repayment each month. Far from being guaranteed, the credit card approval process works similarly to other types of credit. Just like with an application for same day loans, personal loans or an overdraft, the lender will perform credit checks to ensure you meet their eligibility and they will assess your creditworthiness. Your credit score and information on your credit report form an important part of this process.
Credit card applications are more likely to be approved with a higher credit score, but there are credit cards available that can be eligible for those with poor credit, such as credit builder cards which have a low credit limit and can help you build up your credit history. The lender will perform both soft and hard searches of your credit file to check eligibility and to determine what credit limit they can offer you. Generally, only those with a good or excellent credit rating will be offered larger credit limits and more favourable terms. They can also determine whether you are eligible for different credit card products, such as reward schemes including cashback. Having a poor credit score will affect the credit card options available and if there is a higher risk for the lender, it can mean a much higher interest rate.
How you use a credit card will impact your credit score. If you use most of an available credit limit, this will mean high credit utilisation which will have a negative impact. Also, if you only make the minimum repayments each month, which can be very low, it will take much longer to repay the balance and mean you will pay more in interest. You should always make at least the minimum repayment to avoid missing any but aim to clear the balance each month if you can afford to do so.
Maintaining a Good Credit Score
As your credit score is an essential indicator of your financial health, you’ll want to maintain a good credit score once you have one. After all, if you made the effort to improve your score, you ideally do not want it to fall back down again if you can help it. Here are some of the ways to help maintain your good or excellent credit rating:
Responsible credit usage – this is crucial to be able to prove your financial stability. Only applying for credit when you need it, and then ensuring you keep to your commitment by making payments on time, is best.
Keep credit utilisation low – if you can keep below the recommended 30% by CRAs, this will mean your credit utilisation stays low and shows lenders you are not overly reliant on credit.
Credit score maintenance – whilst you do not need to check your report constantly, periodically checking your score and your credit report will help you spot the signs of negative factors quickly. Then you can resolve anything on there that is either inaccurate or outstanding.
Manage debt wisely – if you have more than one loan or credit card, ensure this is affordable for you. Try not to add to the amount of debt you have if you can avoid it, and ensure you keep track of when payments are due. If you can settle any balances early, this will be beneficial to your credit score too.
Keep old accounts open – this will help to show a long credit history, enabling lenders to see you’ve been able to consistently maintain any credit agreements over a long period. You of course can close any accounts you no longer use, such as a credit card with a zero balance, but having mature credit accounts can be beneficial with some CRAs.
Credit Score and Financial Well-being
Your financial well-being is important. The last thing you want is to be worrying about your finances, however, you wouldn’t be alone in doing so. Fortunately, if you start focusing on improving your situation and working on your credit score, you can improve your financial health in time. This starts with understanding the impact of your credit score and the importance of creditworthiness to lenders.
Hopefully, this credit score guide provides a helpful overview of this and some practical tips you can take away. Remember, you don’t need to struggle with your financial health alone, as many organisations can help you. Remember, you do not have to have an excellent credit rating to be financially healthy, as your credit history plays a big part in your score. You may have a low credit rating because of financial difficulties in the past that you can’t change, despite being in a better place financially right now. All you can do is continue to make the right choices and follow tips to improve and maintain your score.
If you need any further assistance regarding your finances or want to learn more about your credit rating, please use these helpful contacts:
Experian – https://www.experian.com/
Equifax – https://www.equifax.com/
TransUnion – https://www.transunion.co.uk/
Money Helper – https://www.moneyhelper.org.uk/en
National Debtline – https://nationaldebtline.org/
Citizens Advice – https://www.citizensadvice.org.uk/
StepChange – https://www.stepchange.org/
