Credit Scores in The UK: All You Need To Know

Credit Scores in The UK: All You Need To Know

Finance

Loans can be of great help to people in many different situations but securing a loan may sometimes be harder than you think, that is if you haven’t maintained a good credit score as it is the main factor that helps financial institutions and lenders decide who is eligible for a loan and who is not.

What are Credit Scores?

A credit score is a set of numerical that is used to help lenders and other financial institutions to determine if an individual is eligible for a loan or not, based on their credit background and history. It is mainly to helps lenders determine if the individual will repay the borrowed sum in time, or not. Usually, the credit score scale starts at 300 and goes up to 750, higher scores are an indication of trustworthiness. If you want to know what is a good credit score UK, then read on.

There are certain factors that are taken into account when calculating your credit score

Delayed payments

Delaying payments of previously borrowed loans or delaying the monthly payments of your credit cards will affect your credit score in a bad way and will show up on your credit history as well.

Little to No history of Finance

If you have not borrowed much in the past or if you haven’t taken a loan at all, it may make the obtaining of a loan difficult. This because with little to no financial history, it becomes a very tedious task for the lender to determine your credit-worthiness.

Country Court Judgement

If the borrower has a Country Court Judgment against his name, this indicates the fact that you have missed your payments and the lender has taken the issue to the court in order to obtain his money back. With this showing up on your credit history, lenders will think twice about lending money to anyone with a CCJ against their name.

Accessibility to the credit available

Individuals who borrow small amounts and individuals who carefully pay their credit card bills in its entirety each month, are not profitable to the financial institutions and lenders. In the same way, if the borrowers have access to large amounts of credit, it can bring their score down as the possibility of withdrawing a large amount and falling into debt is taken into consideration.

See: 8 Best Egg Personal Loan Reviews | Best Egg Reviews | Best egg loan reviews

Credit Check

Also referred to as a credit search, when a financial institution or a lender looks at the financial and credit history of an individual, to aid them in understanding the individual’s financial behavior. Though lenders require no consent of the individual to do this check, they should have a solid reason to do so.

There are usually two types of credit checks

Soft Credit Check

This is where the financial institution or the lender looks at certain information regarding your credit history without recording it on the search history. A soft search is mainly used to determine your eligibility for a loan without doing a full-blown check. The main advantage of a soft check is that it does not affect the credit score.

Hard Check

This is where the lender checks the financial and credit history extensively to determine if the individual can take the loan that they want, or not. Hard checks are complete checks and they leave a mark on your credit history, also they may affect your credit scores.

Credit Score Range

A question that is frequently asked is “what is a good credit score UK?”, there are 3 main major credit reference agencies, namely TransUnion, Equifax, and Experian. They make it an easy task to determine if the individual got a good score or not. That is because of all three agencies having a scale to measure the credit score and once the individual has the score, he just has to look at the scale to see where he is on the chart.

Experian Credit Score Scale

Score Rating
0-560 Very poor
561-720 Poor
721-880 Fair
881-960 Good
961-999 Excellent

Equifax Credit Score Scale

Score Rating
0-279 Very poor
280-379 Poor
380-419 Fair
420-465 Good
466-700 Excellent

Improving Your Credit Score

When people ask what is a good credit score UK, by that they also mean how can one improve their credit scores, as doing it has a lot of advantages, mainly it will help you get a loan when you are in need of finances.

Listed below are a few tips an individual can use to improve his credit score

  • Staying inside the credit limit and keeping a low credit balance are indications of a responsible user
  • If the individual has a long history of regular payments, then he considered trustworthy
  • Making timely payments help in improving your credit score
  • Checking your credit report can help you identify the areas that may possibly reduce your score.
  • Registering to vote may help in improving the chances of the individual applying for credit as once the individual votes, the information can be used to verify details by the lender.
  • Settling off the previous debts helps in improving your credit score.
  • Checking and reviewing your credit regularly will aid you in identifying and rectifying the errors and factors which may reduce your credit scores.
  • Closing down of old unused accounts also helps in increasing your chances improving your score and securing a loan.

Read Also: 7 Mistakes You Should Avoid When Applying for a Business Loan

Overview

After understanding what is a good credit score UK, it is important to act on improving your credit scores because it will increase your chances of securing a loan in the future if you needed to.

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Author: Simon Robert

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