A Beginners Guide to Credit Score: What Makes a Good Credit score?
Today we will be looking at credit scores in the UK. Some of the questions that are in the minds of every UK citizen looking to get a mortgage, buy a new car or just need money for whatever reason is “What is a good credit score?”. This askwallet blog post will go into details about what a credit score is, what makes a good credit score, why credit scores are important and also take a look at some of the main ways to check your credit score in the UK.
What is a credit score?
Most people, especially young adults are just starting to find out about credit scores and have some questions about them. Before we dive into the burning questions let define what a credit score is.
A credit score is a 3-digit number that represents a consumer’s creditworthiness. In other words a number that shows the extent to which a person is considered suitable to receive financial credit. Credit scores go down the scale between good to average to poor, this serves as an indicator that you might have to do something to bring that score higher if you are in the poor credit score range or everything is going great, if you are in a good credit score range.
The way in which your credit score is calculated and presented to you is dependent on the credit referencing agencies or they are more commonly referred to CRAs you are using. In the UK, there are three main CRAs - Equifax, TransUnion and Experian. Each CRA produces a slightly different credit score: Experian and call credit scores you out of a 1000 and Equifax out of 700.
What is your credit score based on?
Well your credit score in most cases is based on your credit history. What is a credit history? Your credit history is a measure of your ability to pay back debts. It is usually listed in your credit report which includes the types of credit account you own, how many credit accounts you have, how long they have been open, how much you owe in total and other information for financial lenders.
Why is your credit score important?
A higher credit score indicates that you have managed credit effectively in the past and represent less risks in the future. This means you'll be more likely to be approved for credit and will be eligible for lower-interest credit cards and personal loans.
If you have a limited credit history because you are new to the country or have never had a credit card, or if you have missed payments in the past. Your credit score is likely to be poor, which will make it more difficult to obtain credit and may limit your credit options to those with higher interest rates.
Credit ratings are built over time, so even if you don't need money right now, but are considering it in the future, Even if you aren't seeking to borrow money right now, but plan to purchase a house or a car in the future, your credit score will increase over time. It is in your best interests to begin improving your credit score as soon as possible. In the future, purchasing a home or a car It is in your best interests to begin boosting your credit score as soon as possible.
What is a Good Credit Score?
Now that we know what a credit score is and why it is important the question remains what exactly is a good credit score? As stated earlier a good credit score looks different depending on the CRA you have chosen to calculate your credit score. We stated that three of the most popular CRAs in the UK include Experian, TransUnion and Equifax. So according to these CRAs, let's look at what they consider to be a good credit score.
A Good Experian credit score
Experian is one of the biggest CRAs serving the UK public. It was founded in 1967 and was the first organization to collect and provide consumer information on a national scale. They have a score range of 0-999. 721-880 is considered a decent credit score. A good score ranges from 881 to 960. A 961-999 score is considered an outstanding credit score.
A Good TransUnion Credit Score
TransUnion (previously known as Callcredit) is the UK's second-biggest credit reporting agency, with ratings ranging from 0 to 710. A credit score between 566 and 603 is considered fair. A credit score of 604-627 is considered good. A score of 628-710 is regarded as excellent.
A Good Equifax Credit Score
Equifax credit ratings range from 0 to 700. A score of 380-419 is considered fair. A score of 420-465 is deemed good. A score of 466-700 is regarded as excellent.
How to Improve Your Credit Score
Check Your Credit Report Annually
Download your credit report or see it online at any of the CRAs listed above. You should go through all of your credit accounts so that you know precisely what you're lending on, whether it's an overdraft or a credit card, and you should go through all of your recent searches. The ones you want to focus on are the ones from the previous six months; your CRA should show you if any of these searches were hard searches, which indicates they have a negative influence on your score, and you should get it straightened out.
Make Sure You’re Registered On The Electoral Roll
Examine your personal information. You must double-check your address. Is your name correct, and are you registered on the electoral roll at your current address? It makes no difference whether you live alone, with your partner, or with your family.
Check if there are any late payments
Is there any late payment on your account? Take another look at what appears on your credit report, especially in the previous 6 to 12 months, because it will have a negative influence on your credit score. Find out what the payment was and try if you can recall why it happened, but don't stress about it. What matters more is the method for having it eliminated. You can contact the lender again to see if the late payment can be resolved.
Close old accounts out
Even if you owe nothing on a card, the lender will consider all of your available credit lines before making a judgment on your application.
It is never too early to start creating a line of credit to improve your odds for a better credit score and it is never too late to start improving a poor credit score. However, you have to be completely locked in and follow the tips that we have provided above and we can assure you that your credit score will see an improvement over time. For more information about online banks check out our blog section.