Understanding and improving your credit score in the UK
Your credit score plays a crucial role in your financial health, affecting everything from loan approvals to the interest rates you receive.
Whether you’re new to the concept or looking to improve your existing score, understanding how it works and the steps you can take to boost it is essential.
In this guide, we’ll walk you through everything you need to know about credit scores in the UK.
What is the credit score?
A credit score is a number that represents your creditworthiness, or how likely you are to repay borrowed money.
Lenders use this score to decide whether to approve you for credit, such as loans, credit cards, or even mortgages.
Understanding the basics
In the UK, your credit score is calculated based on your financial history, including how reliably you’ve paid bills, how much of your available credit you’re using, and how long you’ve been managing credit.
The three main credit reference agencies— experian, equifax, and transunion —each use their own scoring systems, so your score may vary slightly depending on which one is used.
Key factors that influence your credit score include:
- Payment history: paying your bills on time is the most significant factor.
- Credit utilisation: how much of your available credit you’re using, with lower usage being better.
- Length of credit history: the longer your credit history, the better.
- Credit mix: A mix of credit types (e.G., Credit cards, loans) can positively impact your score.
- New credit: frequent applications for new credit can lower your score temporarily.
What is a good credit score?
Knowing what counts as a “good” credit score can help you understand where you stand and what you need to aim for.
Credit score ranges explained
A good credit score typically falls within the following ranges, though these can vary slightly between agencies:
- Experian: 881-960 is considered good; 961-999 is excellent.
- Equifax: 420-465 is good; 466-700 is excellent.
- Transunion: 604-627 is good; 628-710 is excellent.
Having a good or excellent credit score opens up more opportunities, such as better interest rates on loans and credit cards, higher credit limits, and easier approval for mortgages.
It’s also important to remember that while your score is significant, lenders also consider other factors like your income and existing debt.
How to check credit score
Regularly checking your credit score is essential for maintaining good financial health. Here’s how you can do it, and why it’s important.
How do I find my credit score for free?
You can check your credit score for free through several services in the UK, including credit karma and clearscore.
These platforms give you access to your score and report from different credit reference agencies.
To find your credit score for free:
- Sign up with a free service like credit karma or clearscore.
- Verify your identity by providing some personal details.
- Review your credit score and report to see where you stand and identify any areas that need improvement.
These services also offer alerts when there are changes to your report, helping you stay on top of your credit.
Is experian credit score accurate?
Experian is one of the most well-known credit reference agencies in the UK, and their credit score is generally considered accurate.
However, it’s essential to remember that no single score is definitive, as each agency has its own method of calculation.
Your score with experian might differ slightly from your score with equifax or transunion due to these variations.
The best approach is to regularly check your score with more than one agency to get a comprehensive view of your credit health.
How to build credit score
Building a solid credit score takes time, but it’s achievable with consistent effort.
Starting from scratch
If you’re new to credit or have little credit history, here are some steps to get started:
- Open a credit card: A credit-builder card is designed for those with little or no credit history. Use it for small purchases and pay it off in full each month to build a positive payment history.
- Get a mobile phone contract: this is another way to start building credit. Make sure to pay your bill on time every month.
- Consider a small loan: taking out a small, manageable loan and repaying it on time can also help establish your credit history.
Maintaining good credit habits
Once you’ve started building credit, it’s crucial to maintain good habits:
- Pay bills on time: this is one of the most important factors in your credit score.
- Keep your credit utilisation low: aim to use less than 30% of your available credit.
- Avoid applying for too much credit: frequent applications can lower your score, so only apply when necessary.
- Regularly check your credit report: look for errors or signs of identity theft that could harm your score. If you find any, dispute them with the credit reference agency.
How to increase credit score
If you’re looking to improve your credit score, here are some actionable tips:
Key strategies to boost your credit score
- Pay your bills on time: set up direct debits or reminders to ensure you never miss a payment.
- Keep credit utilisation low: try not to use more than 30% of your credit limit at any time.
- Avoid applying for new credit frequently: space out credit applications to avoid multiple hard inquiries on your report.
- Correct errors on your credit report: regularly review your credit report and dispute any inaccuracies with the credit agency.
- Keep old accounts open: the length of your credit history impacts your score, so avoid closing old accounts unless necessary.
- Consider a credit-builder loan or card: these are designed to help improve your credit if managed responsibly.
Learn more details on how to increase your score in our guide.
Conclusion
Your credit score is a vital part of your financial wellbeing, influencing your ability to secure loans, mortgages, and even rental agreements.
By understanding what a credit score is, regularly checking it, and taking steps to build and improve it, you can ensure that your financial future is on solid ground.
Start today by checking your credit score for free and making small changes that can lead to big improvements.
Ready to take control of your financial life? Read our guide and learn how to save money fast.
