How Do UK Credit Scores Work?

Updated: November 19, 2023 Author:

Key takeaways:

  • The UK has three main credit reference agencies, each with different scoring systems, meaning there’s no universal credit score.
  • Lenders use credit scores to evaluate your repayment capability, determining loan amounts and interest rates.
  • High credit scores suggest to lenders a low risk of defaulting on debts.
  • Low credit scores may lead to loan rejections, higher interest rates, or lower credit limits.
  • Good financial practices can gradually improve your credit score.

    Credit scores indicate to lenders how well you manage your finances and how likely you are to repay money you borrow based on your financial history.

    A good credit score will give you access to a wide range of offers for credit, improving your financial options, while a bad score will limit your access to credit.

    Credit scoring systems differ from country to country. In the UK, the three largest credit reference agencies – Equifax, Experian, and TransUnion – each use the information they collect about you to create separate scores. To understand the meaning of your credit score, you need to know how the UK credit scoring system works.

    Why Is Your Credit Score Important?

    Your credit score is a three-digit number that affects any application you make to borrow money, from credit cards, loans and mortgages to mobile phone contracts and car financing. The score is derived from the data in your credit report, also known as a credit file, which indicates how you manage your bills and debts.

    Lenders such as banks, credit card companies and other service providers check your credit report to confirm your identity and financial reliability. They look for evidence that you have a track record of managing your finances well and repaying debt on time and in full to assess your risk as a borrower.

    Lenders use the credit score in your report to decide whether to approve your application, how much money to lend you, and what interest rate to offer.

    If you have a good credit score, lenders will view you as having a lower risk of defaulting on your borrowing. A higher number will make it more likely that lenders approve your application. A lower number can mean you will receive a higher interest rate or lower credit limit, or your application can be rejected altogether. That can affect your ability to buy or rent a home or even get life insurance.

    Lenders consider other factors like your income, loan affordability and account history, but your credit score is a determining factor. Knowing your score will indicate your chances of receiving credit approval.

    How Are UK Credit Scores Calculated?

    Unlike some countries, the UK does not have a single credit score. The credit reference agencies Equifax, Experian, and Transunion collect and securely hold information about your financial management from public records, creditors and other service providers. They incorporate that data into an algorithm to calculate their version of your credit score.

    The agencies each have points-based credit rating systems and may receive different information about you from lenders, so in practice, you have three separate credit scores. But in each case, the number reflects a rating in one of five categories ranging from “very poor” to “excellent”.

    Although the numbers differ, you will likely be placed into the same category at all three agencies as they use similar criteria to calculate their scores. So, if Experian gives you a good score, Equifax and Transunion likely will also.

    Your payment history helps creditors predict how likely you will be to repay what you borrow based on how you have managed your credit previously.

    If you pay your bills on time, your scores will be higher than if you have a history of late or missed payments. How quickly you repay what you borrow and whether you have outstanding debt are also considered. Your credit scores change over time in line with your finances.

    If you have never borrowed money previously, that will weigh on your credit score as lenders find it difficult to assess your reliability.

    Lenders and other service providers often calculate their own algorithm-based scoring when you submit a credit application, aside from the agency score.

    What Affects Your Credit Score?

    The approximate weighting of UK credit scoring

    The three credit reference agencies do not provide details of the formulas for their calculations, but many factors are known to affect credit scores:

    • Personal information. Your income, employment status, relationship circumstances and address create a picture of your creditworthiness.
    • Credit card and loan repayments. Clearing your credit card balance every month shows that your finances are not overstretched and contributes to a higher score. Conversely, a late or missed payment can reduce your score.
    • High credit card balances. Excessive debt can reduce your credit score, so lenders will likely reject an application for additional debt.
    • Credit limit management. Your credit utilisation rate – how much of each credit balance you use – affects your score. The score can decline if you use over 90% of your credit limit or frequently withdraw cash from your credit card account. Remaining well below your limit will help you maintain a higher score.
    • Defaulting on credit agreements. Failing to repay money you have borrowed brings down your credit score and will remain on your report for up to six years.
    • Lack of credit history. A history of borrowing and repayments on multiple accounts over time can support a higher score than if you have no borrowing history.
    • County Court Judgment (CCJ), bankruptcy or insolvency. A CCJ, court summons for debt collection, bankruptcy, or insolvency will heavily damage your score.
    • Consistency. Holding the same credit card account for more than five years or making no changes to your account for six months supports a higher score as it demonstrates financial stability and reliability.
    • Keeping your electoral registration up to date. Agencies use the electoral register to verify your identity. Moving house frequently or not registering for the electoral roll can harm your credit score.
    • Excessive credit applications. Applying for multiple credit agreements in a short space of time can raise concerns about your financial management and reduce your score.
    • Sharing accounts with someone with a low credit score. Holding a joint account with someone with a bad credit history can result in a lower score..
    • Utility bills can support your credit score. If you live in a shared property, having your name on the account and making payments by direct debit and on time can contribute to a higher score.

    When you check your credit score or a lender checks to see if you are eligible for certain offers, this is known as a soft credit check and does not influence your score. When you apply for credit, the lender will carry out an in-depth or “hard check” of your report that does affect the score.

    Taking out a new credit card can lift or reduce your credit score, depending on your circumstances. A new credit account can lower your credit utilisation rate and increase your credit mix, which could increase your score. However, it will also add a new hard check to your credit report and reduce the average age of your credit agreements, which could lower your score.

    If you are building a credit history, a new credit card can reduce your score in the short term but increase it over the long run.

    What Is A Good Credit Score?

    The three credit reference agencies set scores between 0 and 1,000. “Good” credit scores in the UK can range from 531 to 960, depending on the agency. That should mean most credit card, loan and mortgage applications are approved, and the borrower receives competitive offers for interest rates and credit limits. Scores that are rated excellent are more likely to receive the best offers.

    Scores below 560 are “very poor”, which makes it hard to secure credit as lenders are more likely to reject applications.

    UK credit reference agency scoring

    CategoryEquifax (0 – 1,000)Experian (0 – 999)TransUnion (0 – 710)
    Very poor0 – 5600 – 550
    Poor0 – 438561 – 720561 – 565
    Fair439 – 530721 – 880566 – 603
    Good531 – 670881 – 960604 – 627
    Very good671 – 810
    Excellent811 – 1,000961 – 999628 – 710

    As the categories show, there is no single good or bad rating. That also means there is no consistent way to identify an average across the UK.

    Each applicant’s financial and credit circumstances differ, so no set number will guarantee better lending terms. Different lenders have their own criteria for granting credit, and the scores they consider acceptable can vary.

    Note that if you have a new business that is yet to establish a separate credit history, lenders will consider your personal credit score to assess your creditworthiness for a business loan.

    How Can I Improve A Bad Credit Score?

    If your credit score needs work, you can take steps to improve it. That will increase your chances of receiving approval for credit. It can also help you get better deals. There are some things you can do in one day, while others can take weeks or months to have an effect:

    • Check your credit score regularly. Confirm your details are up to date and identify areas that need improvement. You can legally check your credit report for free.
    • Pay bills on time. Set up direct debits or alerts on due dates to keep on top of them.
    • Pay off your credit card bill in full every month.
    • Keep within your existing credit limits, preferably using less than 30% of your available credit.
    • Request a credit limit increase from an existing lender to bring down your credit utilisation rate.
    • Use a balance transfer credit card to reduce interest charges.
    • Consolidate debts if you are struggling to make repayments.
    • Avoid making too many credit applications in a short space of time. Using an eligibility checker will give you an idea of whether your application will be accepted without leaving a check on your credit file.
    • Make sure you are registered on the electoral roll so that creditors can confirm your address and other personal information. Update the information if your details change.
    • Open two or more credit accounts to establish a credit history.
    • Avoid borrowing more money than you can afford to repay quickly.
    • Maintain your credit accounts for at least five years to establish your financial responsibility.
    • Check your accounts regularly with credit monitoring. Report fraud or errors as soon as possible.

    Bear in mind that as it can take time for your credit report to reflect changes in your circumstances and credit utilisation, the sooner you act, the faster your score will improve. How long it takes will depend on why your credit score is low and the actions you need to take to raise it.

    If your credit score is low because of high credit utilisation and you can pay down your balance straight away, you can improve your score within a month. But if your score is low because you have a poor repayment history and multiple debt collections, it can take several months of making payments on time for your score to show signs of improvement.

    Once you have improved your credit score, maintain it at a higher level by keeping low credit balances, paying bills on time, and only making new credit applications as necessary.