How Does Credit Scoring in the UK Work?
In the UK, your credit score acts as a financial fingerprint. This score is calculated by Credit Reference Agencies (CRAs). The three main CRAs are Experian, Equifax, and TransUnion with Equifax being the most popular CRA in the UK. Your credit score is a key factor that banks and lenders use to assess your creditworthiness. The number is based on your past financial behaviors and determines your eligibility for loans, credit cards, and other financial products.
Credit Score Calculation Process
Your credit score is a reflection of your financial past. CRAs determine your score by examining various factors such as your payment history, the total amount of debt you owe, the length of your credit history, and the types of credit you have taken out.
The Importance of a High Credit Score
A high credit score is very important if you wish to get favorable terms on loans and credit based products. Your score affects the interest rates you’re offered and can significantly influence the cost of borrowing. For example, in the case of payday loans, which typically have high interest rates, a higher credit score can lead to the payday lender providing more favorable rates.
National Average Credit Scores
The average credit score varies across the UK. Experian reports a national average of 759 out of 999, while Equifax’s average is around 450 out of 1000. Knowing where you stand in relation to these averages can help you understand your creditworthiness.
Credit Score Ranges and Classifications
Each CRA in the UK has its own scoring system and classifications. Below is a table that outlines each rating range:
| Score Range | TransUnion Rating | Experian Rating | Equifax Rating |
|---|---|---|---|
| 0-550 | Very Poor (1) | Very Poor | Very Poor |
| 551-565 | Poor (2) | – | – |
| 566-603 | Fair (3) | – | – |
| 604-627 | Good (4) | – | – |
| 628-710 | Excellent (5) | – | – |
| 561-720 | – | Poor | – |
| 721-880 | – | Fair | – |
| 881-960 | – | Good | – |
| 961-999 | – | Excellent | – |
| 439-530 | – | – | Poor |
| 531-670 | – | – | Good |
| 671-810 | – | – | Very Good |
| 811-1000 | – | – | Excellent |
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Dealing with a Low Credit Score
If your credit score is lower, it’s essential to try to improve it. Your credit score follows you for life and improving it can save you thousands of pounds over your lifespan as you get better interest rates on all credit you take out including mortgages. Here are three steps to boost it:
- Register on the Electoral Roll: An effective way to enhance your credit score
- Pay Bills on Time: Show responsible debt management and repayments
- Close Unused Credit Accounts: Old accounts can impact your credit score, consider closing them.
For a detailed plan on improving your credit score, read How to Improve Your Bad Credit Score.
If you have a poor credit score and need a loan but struggle to get one, explore our bad credit loan options.
Employers Checking Your Credit Score
In the UK, employers may check your credit score before hiring, especially for jobs involving money or high responsibility.
Depending on the job, some employers might want to see your credit report as part of their screening process. Employers use these credit checks to assess financial responsibility, crucial for certain jobs.
You can say no if an employer asks to check your credit report, but it could affect your chances of getting that job.
So, while you have the choice to keep your credit information private from employers, consider how it might impact your job prospects, especially for roles valuing financial responsibility.
Checking Your Credit Score Regularly
Checking your credit score at least once a year is recommended, especially before applying for new credit. Checking your score yourself is a soft search and won’t harm your credit rating.
Accessing Your Credit Report for Free
The easiest way to check and monitor your credit report is by using one of the main CRAs. They are completely free to use.
Experian: MSE Credit Club
Equifax: Through Clearscore
TransUnion: Using Credit Karma
Common Myths about Your Credit Score
Managing and improving your credit score also means you need to make sure you understand the truth behind common myths. Some Debunked widespread misconceptions include:
No Credit Blacklist: There is no credit blacklist. Lenders base decisions on your credit report, application, and existing accounts. Previous borrowing issues may result in approval with lower limits at higher rates.
Housemates and Credit: Your credit remains unaffected when living with someone unless you both apply for credit together. Credit reports are individual.
Relationships and Finances: Being in a relationship doesn’t automatically link your credit reports or finances unless joint credit applications were made. Finances can be separated if necessary.
Previous House Tenants: Previous occupants cannot impact your finances or credit report. Simply mark their mail as “not at this address.”
Checking Your Credit Report: Checking your credit report won’t harm your score. Each check is a soft search, visible only to you.
No Universal Credit Score: There is no single universal credit score. Different agencies provide different score ranges. What really matters is your credit report, application, and recent account history when lenders decide on approval and rates.
The Bottom Line
Your credit score in the UK is an essential aspect of your financial identity. It influences your ability to borrow money and the terms of such borrowings. Understanding your score, where you stand compared to the national average, and how to enhance it, can open doors to better financial opportunities and empower you to manage your financial future more effectively.