How Does a Credit Score Work In The UK?
If you want to apply for new credit in the UK, chances are that you’ll encounter various confusing expressions. Credit scores and credit reports are undoubtedly two of the most frequent ones, and you might have heard of the FICO scoring scale used by bureaus in the US. So how does credit score work UK wise?
Well, it’s both similar and a completely different story with the credit scores in the UK. To shed some light on how credit scores work in the UK, this guide will help you deal with some differences, the main credit reference agencies in the UK, and credit file items that affect your score and credit report. Let’s get to it!
How UK Credit Reference Agencies Calculate Your Score
In a nutshell, your credit score is calculated by credit reporting agencies that examine your credit report. It’s a record of your credit history that consists of all the types of credit you’ve qualified for over the years, payments made on time, late payments, and loan inquiries.
Overall, it’s an expression of your creditworthiness expressed through a single three-digit number. There’s a set of items in your report that the reference agencies will examine when determining your score, so here’s a list of the main contributing listings:
- Electoral rolls
- Country court judgments
- Insolvencies or bankruptcies
- Personal information including previous and current addresses
- Active credit accounts
- Credit applications
- Missed payments
- Credit history
So, the whole process of determining your credit score is different in the UK when compared to the US FICO rating. Public records are of higher value with UK reference agencies, as well as the information on potential business associates with whom you might share a joint account.
A credit reference agency will examine all of these entries from your report, and come up with a unique figure for your credit rating. So, it’s not a lender, but rather a financial institution that estimates your creditworthiness for the lenders to see.
The Main Credit Reference Agencies In The UK
Although there are significant differences in how a credit reference agency in the UK calculates your score when compared to the US, credit bureaus are much alike. One of the largest credit reference agencies in the UK was once CallCredit, but it was acquired by TransUnion recently.
So, the main credit reference agencies in the UK are now TransUnion, Equifax, and Experian, just like in the US. There’s also the addition of Crediva, which is a fourth credit reporting agency in the UK, but it operates on a lower scale than the big three bureaus.
Of course, your credit score can differ from one credit reference agency to another. So, you need to consider the credit reports from all three major credit reference agencies if you want to get an idea of what’s a “good credit score”.
TransUnion Credit Scoring Model In The UK
Since the scoring systems are different for each credit bureau in the UK, let’s go over the different scales of each one. Starting with TransUnion, your credit score can range from 0 to 710.
While it’s not impossible to get down to zero, it would mean that you don’t have any previous history of payments in the UK. Even if the credit reporting agencies only have your personal information at your disposal, it’s still enough to bring your score above 0.
Still, it’s also difficult to reach a credit score in the 700+ range, so what’s a good credit score by TransUnion’s model in the UK? Consumers with a credit score higher than 570 are considered to be in the good credit score range in the UK.
On the other hand, a great score is considered to be one between 604 and 627, while anything above 630 is excellent, according to TransUnion’s scoring model.
What’s A Good Experian Credit Score In The UK?
Experian uses a different credit rating scale for UK residents, and the scale is somewhat confusing when compared to both the US credit scoring system and TransUnion’s scale in the UK.
Truth be told, it might be a bit easier for calculating a fair credit score range since the scale goes from 0 to 999. The average credit score in the UK is around 797 according to Experian, based on the recent study that the reference agency provided.
That places you in the group of consumers with a fair credit score if your rating is close to the average credit score in the UK. A healthy credit score based on Experian’s scale in the UK would be above 880, as it fits you in the very good credit score range.
Finally, consumers with a credit score above 960 can count on the very best deals in terms of loan applications and interest rates, as well as higher credit limits on credit card applications.
Credit Scoring Model Of Equifax In The UK
Equifax is yet another credit reporting agency like Experian that uses a different scale when compared to the US credit range. According to Equifax data, you’ll have a credit score in the range of 0 to 1000 in the UK.
Based on your credit information, your credit score will be in one of the following categories – poor, fair, good, or excellent. Based on the scoring model used by Equifax, any credit score below 440 can be considered poor.
With a credit rating above 440, you’ll fit in the “fair” category, while the “good” credit range starts at 530. Finally, consumers with a score higher than 810 fit in the “excellent” range.
So, What Does It Mean For UK Consumers?
Essentially, you’ll want to maintain a high credit score for two reasons – a higher loan acceptance rate, and better repayment terms. When applying for a mortgage or personal loan, lenders will use the information provided by the credit reference agencies by taking a look at your credit file.
Not all lenders use the information of the same credit reporting agencies, so you shouldn’t be surprised if your credit score varies from one loan application to another. If you are able to push your credit score beyond the average UK score which is 797 based on the Experian scoring model, you’ll stand a better chance of getting approved for new credit.
Also, your loan repayment terms might include an extended repayment period if you seem like a low-risk consumer that’s likely to repay on time in the eyes of the lenders. Interest rates are also a no-brainer, since the higher your credit score is, the lower the rates will be.
So, applying for a loan or credit card in the UK gets much easier if you have a good credit score to back up your credit worthiness.
Checking Your Credit Score
There are several ways in which you can check your current credit rating. You can do it from the comfort of home via the sites of the major UK credit reporting agencies. Still, that could cost a few pounds, so it’s also a good option to use services like Checkmyfile.com.
Instead of having to pay for receiving credit score information from each of the major reporting agencies, this site gives you a more convenient approach. You’ll get the information from all 4 credit reports combined into a single report, so you’ll know your standings before applying for a new loan.
How To Improve Your Credit Score In the UK?
Although there’s no universal credit score in the UK due to the differences in scoring models used by the reporting agencies, there are some things you can do to boost your score on all reports. Most of the scoring models in the UK rely on similar items that enter your credit report, so here’s how you can boost your credit rating:
- Avoid county court judgments – Most of the negative listings on your report like missed payments can stick for up to six years, but collections and filed bankruptcies can leave a more permanent mark. So, you should try to close your collection accounts and avoid bankruptcies as they would be reported to the Register of Judgments. Credit reporting agencies can see the county court judgments and they can significantly drop your rating.
- Don’t be late more than 30 days – Late or missed payments are your biggest enemy if you want to preserve good credit scores in the UK. Try to keep a history of timely payments on all credit accounts, and if you miss the deadline for a few days, just make sure that you pay as soon as possible to prevent having a negative listing on your credit report because of it.
- Be careful with your credit limit – Credit reporting agencies in the UK will also consider the usage of your credit limit. If you use more than 90% of the limit, it will cause your credit score to drop. On the other hand, using less than 90% will have a good reflection on your credit report.
- Credit history longevity is the key – If you have a long-lasting credit history, don’t close your old credit card accounts. UK credit reporting agencies like to see that you can show a history of timely monthly payments on a single credit card for more than 5 years, and doing so will boost your score.
- Have a few open accounts – Your financial history shouldn’t be limited to one or two credit accounts even if you can always repay the loans responsibly. The bureaus will want to see you send a couple of credit applications over the years, to demonstrate your creditworthiness in regard to multiple accounts.
In the end, it’s also important that you check your credit score regularly. You can see your credit scores calculated every day as the reporting agencies update them regularly.
Credit scoring models in the UK can be somewhat confusing, so hopefully, you now get the bigger picture as to how it’s calculated. From your bank accounts, types of credit in a mix, to borrowing history and debt to income ratio – the reporting agencies consider it all.
You can get a higher credit score by keeping clean payment history and registering on electoral rolls to keep your information updated for bureaus to see.
Frequently Asked Questions (FAQ):
What is a good credit score in the UK?
The idea of an average credit score or a good credit score in the UK depends on the different scoring models that reporting agencies use. For instance, a good credit score based on the TransUnion scale is in the range between 604 and 627. However, a good score on Experian’s scale is 880, so it all depends on the reporting agency.
What are the main credit reference agencies in the UK?
There are 4 different credit reference agencies in the UK including TransUnion, Experian, Equifax, and Crediva. Your credit report and rating might differ from one to another, based on the scoring models they use.
What items do reporting agencies use when forming my credit score?
Some of the main items that credit agencies in the UK consider when building your credit score include the history of payments, types of credit in your portfolio, county court judgments, financial associates, retail credit, utility bills, and electoral register for tracking your address history.
What does a good credit score in the UK mean?
By taking a look at your credit scores, the lenders calculate the risk that they take by granting you a loan. If your financial data shows you have too much debt, you’ll have a more difficult time getting the loan, and the loan repayment terms might be much worse than if you had a good credit score.