Have you ever been confused about what makes a good credit score in the UK? You’re not alone. Lots of us think that you’ve got to have a perfect credit score to borrow money. But in the UK, there’s no such thing as a perfect credit score.
Having a credit score of 700 and above should improve your chances of being approved for most loans. If your credit score is below this don’t panic. Your credit score isn’t fixed, there are things you can do to improve it.
What is a credit score?
A credit score is a number that shows how well you’ve managed your money, both now and in the past. It also gives you an idea of how likely it is you’ll be approved for loans. The lower your score, the harder it can be to find loans without paying a high interest rate.
Your credit score is worked out by Credit Reference Agencies (CRAs). They use information on your credit file to calculate the score. Credit Reference Agencies collect the information on your credit file from businesses you have financial accounts with.
What is considered a good credit score in the UK?
To have a good credit score in the UK, you’d need it to fall in the top scoring ranges set by the three CRAs. These agencies each use their own scoring range to decide if your score is excellent, good or poor. It means there isn’t one number that’ll give you the same rating across all three agencies. The table below shows how the scoring ranges differ between the Credit Reference Agencies.
| Credit Score Range | Very Poor/Poor | Fair | Good/Very Good | Excellent |
|---|---|---|---|---|
| Experian | 0-720 | 721-880 | 881-960 | 961-999 |
| Equifax | 0-438 | 439-530 | 531-810 | 811-1,000 |
| TransUnion | 0-565 | 566-603 | 604-627 | 628-710 |
Why a good credit score is important?
A good credit score is important because it shows that you’re good at managing your money. It’s used by lenders to help them decide if they’ll approve your application for a loan.
A high credit score means you’re a low-risk borrower. This not only makes it easier to borrow money, but it could also lead to a lower interest rate. A low credit score makes you a higher risk for lenders. This makes it harder to get loans and could lead to you being offered higher interest rates.
How is a credit score calculated?
Credit scores are calculated using the information that’s on your credit report. Some factors will have a bigger impact on it than others.
1. Your payment history
Your payment history shows how good you are at paying back your debts. It’s one of the biggest factors that’ll affect your credit score. If you miss just one repayment, it’ll bring down your credit score. That’s why it’s important to make sure you’re never late paying back your loans.
If you haven’t been great with your repayments in the past, there are things you can do to help improve this.
- Set up a direct debit to pay your bills when your wages go in. You’re less likely to miss the payments if they’re paid in this way.
- If you’ve fallen behind on payments you’ve missed in the past, catch up as soon as you can. The quicker you get back up to date with your payments, the quicker your credit score will start to improve.
- Do a budget plan. Budgeting helps you pay the important stuff like your loan repayments, and then only spend what you have left. It’ll be worth the effort when you see your debts coming down and your credit score going up.
2. Your outstanding debts
Outstanding debts will impact your credit score as having too much debt can bring it down. It depends on how much debt you have in relation to your credit limits. If you’re maxing out your credit cards, it’ll hurt your credit score. But if you only borrow around 30% of your credit limit, this’ll help your credit score.
3. The length of your credit history
Your credit history is built up over time. If you haven’t borrowed money before, your credit history will be short. With a short credit history, there’s not much information to base your credit score on. This will make your score low.
There are credit cards you can take out that help build your credit score. They’re called credit builder credit cards. If you take out one of these, always pay back what you spend on it each month. That way you’ll soon see your credit score start to go up. It takes around 6 months to build your credit score, so be patient while yours is improving.
4. The types of credit you use
There are different types of credit available, the most common ones are:
- Mortgages
- Loans
- Credit cards and lines of credit
- Car Leases
If you have a mix of these different types of credit, it shows that you can manage your money well. It helps your credit score – as long as you don’t borrow too much, and you keep on top of your payments!
How to check your credit score in the UK for free?
You can check your credit score in the UK for free for a year by signing up with one of the Credit Reference Agencies. There are three main agencies to choose from:
- Experian
- Equifax
- TransUnion
When you get your credit score from these agencies, you’ll find your score won’t be the same with all three. This is because they don’t all use the same scoring ranges – our table above shows this. But if your score is rated as good with one agency, it should have a similar rating the other two. If it’s wildly different, check the information on your credit report to make sure it’s correct.
The other way of getting your credit score for free is by signing up to a credit monitoring service. Martin Lewis’ Creditclub & Clearscore are two examples where you can get your credit score for free.
How to get started on improving your credit score?
If you want to start improving your credit score there are a few things you can do.
1. Check your credit report for errors
It’s important that you check your credit report to make sure it’s accurate. If it has any errors on it, raise a dispute with the agency and get it put right. You don’t want your credit score to be brought down by a mistake.
2. Make all your payments on time
You can help improve your credit score by making all your repayments when they’re due. If you’ve fallen behind, catching up with your payments can make a big difference to your credit score. Paying back your debts on time shows lenders that you’re reliable and can manage your money well.
3. Use a credit monitoring service
Credit monitoring services are useful for helping you keep track of your credit score. They not only tell you what your credit score is, but they’ll let you know if it changes. There are number of credit monitoring services in the UK, here are a few suggestions.
- Martin Lewis’ Creditclub
- Clearscore
- Credit Karma
4. Keep your credit card balances low
Keeping your credit card balances at 30% or less of your credit limit is good for your credit score. For example, if you’ve got a credit card with a limit of £1,000, you should try to keep your balance below £300. This shows lenders that you’re not desperate for money.
5. Avoid opening new accounts if you don’t need to
Every time you open a new credit account it flags up on your credit file. Even though it only stays on there for 12 months, it can affect your credit score. The key here is to try not to make too many applications close together because if you do, it’ll hurt your credit score.
What are the benefits of having a good credit score?
There are benefits to having a good credit score, here are three reasons why it’s worth looking after yours.
- A good credit score helps you get approved when you apply to borrow money. You’ll have a bigger choice of lenders to apply with too.
- If you’ve got a good credit score, you’re more likely to be offered a lower interest rate.
- Your credit score is used for more than just loans and credit cards. Landlords and employers might run a check on your credit score as part of their application process.
Conclusion
In general, a good credit score in the UK must be above 700. But what’s rated as a good credit score will vary depending on which Credit Reference Agency you use.
A good credit score is important if you want a bigger choice of lenders. It also helps you get a better interest rate.
There are ways of improving your credit score, making your payments on time is the most important factor. There are other factors that can affect it which you need to look out for. But it’s best to find out what your credit score is, then do what you can keep it as high as possible.
FAQs
What is the difference between a credit score and a credit rating?
In the UK, a credit score and a credit rating both measures how credit worthy you are. The main difference is that your credit score is a number, your credit rating is the range within that number falls.
For example, with Equifax, you might have a credit score of 700. In this case, your credit rating would be ‘good’ as it falls between 531 and 810.
What is the average credit score in the UK?
The average credit score in the UK is 798 with Experian. But there are three credit reference agencies in the UK and they each have their own average score. To find out if your credit score is average, you’d have to check with each agency.
Remember that credit scores aren’t set in stone. If your score is low, there are things you can do change it.
What can I do if my credit score is below 600?
If your credit score is below 600 there are ways of improving it.
1. Make all your repayments on time
2. Borrow below your credit limits
3. Leave long gaps between credit applications
4. Use a credit monitoring service to help you keep track of your credit score
Disclaimer: We do not provide financial advice, this guide is for informational purposes only. Also, we are not affiliated to any of the external parties, these links are provided for reference only.
