A credit score is what lenders use to check if you are able to manage your debt and tells them if you are a risk or not. If you know how to check your credit score, the next question is always ‘What is a good credit score UK?’ It’s a good question, and one without a single answer because the three main credit referencing agencies (CRAs) in the UK scores consumers differently.
Each CRA states what is a good credit score is on their websites:
- A good Experian score starts at 700, with 800 considered excellent.
- With Equifax it is 660 and above.
- Noddle’s best indicator is a 3 or more on its 1-5 rating.
If you have a good credit score, you can save money on hefty interest rates, because your hard-earned credit rating will give you access to the better rates and deals on credit cards, loans, credit agreements and mortgages.
On the other hand, if you have a bad credit rating, you are likely to be offered high interest rates and worse deals, or fail to qualify for credit.
- 1 What is a Credit Check?
- 2 The Importance of your Credit Report
- 3 What affects your Credit Score?
- 4 Tips to improve your Credit Score
What is a Credit Check?
When you apply to borrow money, the lender will evaluate if you are worthy of being given credit. The lender does this to know whether you can manage your debts, or whether you are likely to run into financial trouble or even default on the debt.
When deciding whether to approve your application, the lender will look at your official credit report which contains full details of your financial history. This report will be provided by one or more of the UK’s main credit reference agencies for a fee.
This report will tell the bank, loan company or building society whether you have a mortgage, how much you owe on cards, and if you have missed any payments on your cards, loans or mortgage payments.
So, the higher your credit score, the better your chances of being approved for the most attractive deals.
The Importance of your Credit Report
As you may have realised, your credit report is incredibly important because it helps lenders decide if they should approve or decline your application for credit and what terms they can give you.
Each lender has its own specific rating system, it will consider your application and any previous dealings they might have had with you to come up with a specific credit score.
Contrary to popular belief, there isn’t a credit blacklist and you don’t have one standard credit score. If you are turned down by one lender, you could well be accepted by another.
Someone with a spotless credit record, is likely to qualify for a low or 0% interest credit card deal. However, if your record is blemished with unpaid debt or a County Court Judgement (CCJ), you could be turned down or charged a higher rate of interest.
What affects your Credit Score?
Your credit score is calculated by taking a number of factors into account, these are:
If you are late or you miss a credit card payment or a monthly repayment loans, it will show up as a bad mark on your credit file.
Your record is tainted if you pay only the minimum payment amount each month, as it suggests that you are struggling to manage your debts. On the other hand, paying more than your minimum required will benefit your credit rating
IVA or Bankruptcy proceedings
You will almost certainly have a low credit score if you are declared bankrupt or enter into an Individual Voluntary Arrangement (IVA).
CCJs (County Court Judgment)
Lenders are wary of borrowers who have a County Court Judgment (CCJ) against their name, because these are used by lenders to claim money back in a legal procedure.
Little or no financial history
You may struggle to borrow money if you have never borrowed before, as having no credit history makes it difficult for the lender to determine your creditworthiness.
Access to small credit
People who borrow relatively small amounts and quickly pay off their credit card bills in full each month are not profitable for lenders as you’re leaving no margin for profit as you are paying off the loan before allowing any interest to build on it.
Access to large credit
Similarly, having access to large amounts of credit could worsen your score, as there is a possibility you might draw down and struggle to make payments.
Frequency of credit applications
If you apply repeatedly, lenders may assume you are in a financial crisis. You should limit your applications, particularly if you were recently turned down. A ‘Soft Search’ can be used in these moments as lenders cannot monitor the frequency of your loan applications or rejections through a soft search.
It’s important to understand that this information doesn’t stay on your report forever. A missed payment on your credit card will usually be wiped off after three years, and details of a CCJ or bankruptcy remains on your report for six years.
Being refused credit is frustrating, especially because the lender doesn’t need to give you a reason. That being said, you should always ask why as they might give you a broad hint, which you can review against your credit file to ensure it’s accurate.
Also, the timing of your application could affect your score. So don’t be surprised if you are refused credit shortly after moving home or switching jobs, as lenders look for stability and can be put off by any recent changes.
Tips to improve your Credit Score
Since there is no such thing as a credit blacklist or a standardized credit scoring system, this means that there are various ways to improve your score.
Here are our top tips:
Register on the Electoral Roll
One of the easiest ways of boosting your score is getting on the electoral roll/register.
You can register for free online and if you aren’t on it then you probably won’t get credit.
Demonstrate Financial Stability
Obviously, the best way to improve your credit rating is to manage your debts well. Don’t miss any monthly payments, stick to the payment deadline, and stay within your credit limit.
Check your Credit Report Annually
Review your report each year to check all the information held about you is correct and fix any errors if you spot them.
Close Down Old Accounts
You might owe nothing on the cards, but the lender will look at all your sources of available credit before making a decision on your application.
Cut Financial Links with Previous Partners
If you have any joint financial accounts, your credit score could be affected based on the credit-worthiness of your partner, which inturn could influence a lender’s decision. Ask all CRAs to add a ‘notice of disassociation’ to your file if you have cut ties with an ex-partner.
Consider a Credit Builder Card
Prove you can manage your debts sensibly and improve your score through credit builder loans. Interest rates on credit cards for low credit scores are usually high, so only consider this option if you can keep your borrowing under control.
Now that you’ve been informed on what is a good credit score UK, and how to improve on it. You should consider applying for a few loans that can be comfortably paid off with the sole intention of increasing your credit score, leaving you in a better financial position if you ever need to urgently take a loan.