What is a good credit score?

What is a good credit score in the UK?

Credit score is a term that’s thrown around a lot when it comes to things like loans, applying for mortgages or getting a car on finance, but do you actually know the meaning of a credit score and why it’s so important?

In this guide, we’ve put together all the information you need to know about the credit score range in the UK, what is a fair or good credit score, how to build a credit score and how to maintain a stable credit score.

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What does credit mean?

In terms of money, credit usually involves an agreement between a lender of money and a borrower, where the borrower receives the money straight away and agrees to pay it back at a later date (usually via monthly repayments).

Why is your credit score so important?

Your credit score is important because it determines the likelihood of a lender giving you money if you apply for some kind of credit.

If you have a low credit score, then you’ll probably be deemed as more at-risk of not paying the money back, so some lenders may refuse to lend you money or will charge you much higher interest rates, so you'll end up paying a lot more than what you initially borrowed.

A good credit score can help you to obtain certain financial elements such as a credit card, a mortgage or a loan.

What is classed as a good credit score?

In the UK, there are three main Credit Rating Agencies (CRA) who will determine your credit score on their own individual basis; Equifax, Experian and TransUnion. Crediva is another CRA that's growing in popularity.

Credit scores usually fall into one of five categories; excellent, good, fair, poor and very poor. It goes without saying that you want to avoid obtaining a poor or very poor credit score at all times, and you should always be aiming for a good or excellent credit score.

When it comes to what is classed as a good credit score, it will differ depending on which Credit Rating Agency you choose to assess your credit score.

For example, a good Equifax credit score range would fall between 420 and 465, whereas a good Experian credit score is measured between 881 and 960. A good TransUnion credit score would be between 604 and 627, so it really differs depending on which company rates your credit score.

Companies such as Clearscore UK use the Equifax credit score rating to show your credit score, so it is shown from a range of 0-700. Experian rate their scores from 0-999 and TransUnion rate theirs from 0-710.

It’s important to remember that more often than not, if one credit rating agency gives you a ‘good’ score, then chances are, others will too. However, it just depends on which agency you go for and whether they deem your score to be good or not.

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Average credit score in the UK

The average credit score in the UK actually depends on numerous factors including where people live and how old they are.

In London, the average credit score is between 750 and 850, whereas in Yorkshire, the average credit score falls between 750 and 820, according to Experian’s credit score map of the UK.

How to maintain or improve your credit score

When it comes to improving your credit score, there are a few things you can bear in mind to improve your score in order to increase your chances of being accepted for a loan, mortgage or any other kind of finance that might require you to have a good credit score.

Here are a few ways to improve your credit score:

  • Register on the electoral roll in order to prove where you live.
  • Always try to ensure that you pay your bills on time to avoid any debt.
  • Try to keep your credit utilisation low - this is the percentage of your credit limit that you use. It’s a good idea to try and keep your credit utilisation as low as 25% if possible.
  • Pay off any high levels of existing debt.
  • Build your credit history - it might seem a little backwards, but in order to do this, you will have to take out a line of credit and then prove that you can pay the money back.
  • Check your credit report on an annual basis, or before you make any applications that require your credit score in order to gauge whether you think it’s good enough.
  • Keep your finances separate from your partner’s if they have a poor credit rating; don’t take out a joint loan or open a joint bank account with them as this could negatively affect your credit rating.

You might like: Does a joint bank account affect your credit score?

Improving your credit score has several benefits alongside increasing your chances of being accepted for a loan including:

  • Lower interest rates - if a lender deems you to be less at risk of not paying the loan back when it comes to lending you money, then they might offer you better rates and loan conditions as a sort of reward; this will make it cheaper for you to borrow money.
  • Higher credit limits - a good credit score will also increase your chances of being able to borrow higher amounts of money, so you can purchase a new car quicker or pay for things using your credit card.
  • Higher chance of approval - having a good credit score increases your overall eligibility to be accepted for different kinds of loans and it looks good on any kind of monetary application that you make.

Understanding credit scores can be a long and often drawn-out process. There are so many components to be aware of when it comes to credit scores, so try not to get too overwhelmed and just process information as and when you can.

Building and maintaining a good credit score can often take years to accomplish, and it can be incredibly frustrating when the tiniest incident sets your credit score back. Try to remain vigilant and always pay your bills and loans back on time to avoid any detrimental effects to your credit score.

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