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Knowing what your credit score is can be very helpful, but sometimes getting your head around how everything works and how it is calculated can be a bit challenging.
A good credit score is a score between 420 - 465 according to Equifax, a leading credit reference agency in the UK.
Let’s look at what you need to know about credit scores, how they work, and what the UK’s average credit score is.
A credit score measures your ‘creditworthiness’. This determines how likely you are to pay back money that you lend.
In the UK you are given a number that indicates your creditworthiness. Everyone over the age of 18 who has opened an account, has a credit score.
Once you have opened an account your ‘credit report’ starts.
Getting access to a range of products and services will be determined by how strong your credit score is. A strong credit score has perks when it comes to needing to apply for the following:
Loans
Credit cards
Mortgages
Mobile phone contracts
It can also assist with really generous credit limits and better interest rates. Direct lenders will be less likely to lend money if they think that you will not repay as lenders are under no obligation to lend money to anyone.
There are three Credit Reference Agencies (CRAs) in the UK that calculate credit scores:
Experian
Equifax
TransUnion
These Credit Reference Agencies are the only organisations that are able to perform credit checks and are authorise by the Financial Conduct Authority to provide you with a credit report.
Equifax assists consumers to access products and services they need and want by calculating their credit score rating.
They are one of the largest sources of consumer data collectors in the UK and have more than 120 years of experience.
By assisting financial institutions, companies, employers and government agencies, they make it easier for them to make decisions regarding who to lend credit to with confidence.
Equifax’s ranking is based on a score of 700 and the average estimate for credit score with them is 380. Based on their scoring categories, 380 is seen as a ‘fair’ credit score.
Equifax rates credit scores in the following categories:
0 - 279: Very Poor
280 - 379: Poor
380 - 419: Fair
420 - 465: Good
466 - 700: Excellent
The best way to put it- the higher your credit score is, the more choices you have.
If you are wanting to apply for a credit card and you have a ‘fair’ credit score, your interest rate might be slightly higher.
The credit limit you start off with might be increased over 6 - 12 months depending on your financial stability and payments being made on time.
The better your average credit scores the higher your chances are of getting a competitive interest rate and higher credit limits.
It will mostly come down to how you have managed your money and debt. Your financial history is a deciding factor in how your credit score is decided and calculated.
As soon as you take steps to improve your score, even just with one agency, you will see improvements across the board.
Keep in mind, it might take some time for the positive improvements to show by means of a higher credit score, as your credit file needs time to be updated.
Moving too often
Errors or fraudulent activity on your credit reports that are not detected
Withdrawing cash from your credit card frequently
Too many credit applications in a short time
A history of late or missed payments
Going over your credit limit
Not being on the electoral roll
Having a joint account with someone who has a bad credit record
Insolvencies or bankruptcies on your credit history
Maxing out a loan or credit card
Avoid having too many credit cards
Avoid maxing out your credit cards
Make your repayments on time
Do not skip instalments
Report rental payments (if you are renting)
Register to vote
Close old or small credit accounts that are not used often
If lenders do not have enough info on your credit history it’s difficult for them to make a lending decision.
Each year you can request a credit report from each of the three major credit report agencies. This is free and it is a good idea to request a report from each of the credit rating agencies and carefully review them.
There can be inconsistencies or inaccuracies and if you spot an error on either report you should submit a dispute to the agency where the error is showing.
Actively managing your credit is important and your responsibility. Having good credit scores and good payment history can affect the ability to purchase a home, buy a car or even pay for a mobile phone.
Staying in control of your finances is the only way you will achieve your goals and keep your credit score in a category that will benefit you when applying for a loan, credit card or mortgage.
