What Is a Bad Credit Score in the UK?

What score is classed as 'bad' in the UK

Your credit score is like a passport to credit in the UK, and that little number can mean the difference between getting a mortgage or a loan and having your application rejected. However, considering it’s an important number in most people’s lives, credit scores are widely misunderstood. Tending to your credit score is an important part of keeping your finances healthy, so what is your credit score and how can you look after it so that it works for you when you need it most? Let’s take a look.

What Is a Credit Score?

At its most simple, a credit score is a number that lenders use to decide how healthy your finances are before they lend you money. The maximum credit score that you can achieve varies depending on the credit agency, but it tends to fall somewhere between 500 and 1000, and your personal score is determined by a range of factors that are also determined by the individual credit agency. The first thing that you’ll notice about credit scores is that a lot rests on which of the four credit reference agencies (CRAs) you’re consulting. Below, we take a look at each one, and what the differences are between them.

However, one of the less understood facts about credit is that you don’t just have one score but four, and each one is calculated by a different agency that has different priorities. As a result, your score will be different with each one – this is because they use their own scales to score you and because they give different weights to various factors regarding your finances. For example, one agency might consider your payment history to be the most important thing about your finances, while another might consider credit utilisation to matter most. Common criteria include:

The number of credit accounts you have

The type of accounts

Available credit

How much of the available credit you use

Length of your credit history

Your payment history

What Is a Credit Reference Agency?

In the past, borrowers often had a personal relationship with their local bank manager, who would look over their finances and decide whether or not they could afford a loan. Now, because of the sheer number of people with ever more complicated finances, that’s not a realistic way of working. As a result, banks now trust credit reference agencies to hold that information for them, and they each have a file on anyone who has ever interacted with the financial system. Each file is structured differently depending on each CRA’s processes, but they all have the same basic information: Your name and personal details, your current and past addresses, a record of everything you owe and to whom, a record of every payment you’ve made and any you’ve missed, and a record of any bad debt or penalties you’ve suffered. This file in total is called your credit report, and it’s updated every month with the latest information. Every regulated lender in the UK must perform a credit and affordability check before being able to lend you money so it’s not possible to take out loans with no credit check, they all have to use one of the four main credit reference agencies. So, who are the CRAs?

Experian (0 – 1000)

Founded by the merger of two information service companies in 1996, Experian’s success was based on the sheer volume of accurate data they held on potential banking customers. This was really useful for banks at the time, who often had to wait days or weeks for this information in the past, and so Experian grew quickly to become one of the leaders. Now, Experian’s main selling point is the speed and accuracy of its updates, so they place a big emphasis on your details being correct. You’ll be penalised more heavily if your address is wrong or your name doesn’t match, for example. 560 and below is considered ‘very poor’, while 960 and above is considered ‘excellent’.

Equifax (0 – 700)

This US-based CRA has a surprisingly long history, dating back all the way to 1899 and the early days of trans-American commerce. Originally, Equifax kept lists of merchants who paid their bills on time, so buyers would be able to check the trustworthiness of people they didn’t know. If you weren’t on Equifax’s good list, there was a chance you might not pay up on time. This tradition continues to this day, and Equifax still puts a lot more emphasis on your history of missed payments or financial penalties over everything else. Equifax considers 279 or below a ‘very poor’ score, while 466 and above is ‘excellent’.

TransUnion (0 – 710)

TransUnion used to be known as Call Credit, until it was bought out by the US finance giant in 2018 and changed its name to reflect its new owners. TransUnion is now the second-largest CRA in the UK and is one of the ones most used by lenders to check your score, placing a large emphasis on your credit utilisation over other factors. This means you’ll be penalised if you regularly use more than 50% of the total credit available to you. With TransUnion, a score of 550 or below is considered ‘very poor’, while 628 or above is ‘excellent’.

Crediva (0 – 1000)

While the above three CRAs are where the vast majority of lenders go to get the information they need, there is a fourth CRA called Crediva. It is a smaller CRA that only recently began collecting individuals’ information, as it had historically focused on business to business credit, but it’s worth keeping an eye on your score with them, particularly if you are a small business owner or sole trader.

How Is Your Credit Score Used?

While your credit score is important, it’s helpful to remember that it’s not the be-all and end-all of your credit report. Your score just tells you, on average, how attractive you are to lenders as a potential borrower. When lenders actually request a search on your credit file, they’ll have access to far more information than just your score, and they’ll decide whether or not to lend to you on that basis. If, for example, your score is low because of high credit utilisation, but the lender only cares about your payment history, which is perfect, they will probably still lend to you anyway.

Another way that companies use your credit score is to assign you into a risk category, which determines the type of deals they think you’ll be eligible for. Even if your credit score puts you in the ‘poor’ or ‘very poor’ category, this doesn’t necessarily mean that you won’t be able to obtain credit at all, it’s just more likely that you won’t be offered the best rates or products, for example loans for bad credit generally have a higher APR. Conversely, if your credit score is ‘good’ or ‘excellent’, it’s more likely that you’ll be offered more favourable terms on any loans you want to take out, such as lower interest rates or longer repayments. This is because your credit score marks you out as being at lower risk of default.

If your credit score is 'good' or 'excellent', it's more likely that you'll be offered more favourable terms on any loans you want to take out

How Do I Find Out My Credit Score?

Knowing now how lenders use your credit score to judge which products you are eligible for, you can see why it’s a good idea to know what your score is across the four CRAs. One of the ways that the CRAs make money as businesses, aside from selling your information to lenders, is keeping track of your credit score on your behalf. As a result, you can access your credit report and your credit score for a monthly subscription fee. The amount varies from one CRA to another, and it’s worth knowing that TransUnion allows you to access your score for free via CreditKarma, but on top of the basic information, you can also access tips to increase your score and view the latest products you’re likely to be approved for.

While you have the option to pay for a service with each CRA, you do have other options. There are some aggregator websites that allow you to view all of your credit scores in one place, for example, so that you don’t have to have several separate subscriptions. It’s also important to be aware that you have a legal right to view your credit score and report for free, any time you want to access it. You can make an application any time, and for a nominal administration fee of just a few pounds, but the information you receive will only be a snapshot of your score at the time. If you plan to track your score regularly across the four agencies, it can often be more cost-effective to have a regular subscription in place rather than paying separately each time.

How Can I Improve My Credit Score?

Regardless of how high or low your credit score is, there are always things you can do to improve your score. Some of those things are as easy as basic administrative tasks, while some of them are lifestyle changes that can help make you appear more creditworthy in the long term.

The first thing that anybody wishing to boost their score should do is to make sure that all of their personal details are correct and match across all their accounts. One of the major uses of a credit file is to check your identity – to make sure you are who you say you are for fraud prevention purposes – so if your identity looks suspicious because of inconsistent information, you may find your credit score is affected. In order to make sure that nothing simple like this is damaging your report, it’s a good idea to double-check the information they hold on you to ensure that it’s right. Big life events like marriages or name changes can be a time when things like this go wrong, with maiden names on one bank account and married names on others, so that’s a good time to check. Registering on the electoral roll can also help to boost your score, as it’s an official government confirmation of your identity.

It's a good idea to double-check the information the CRAs hold on you to ensure that it's right

Credit utilisation is a factor that many lenders consider to be important, but borrowers may not consider. Even if you have a perfect record of payments, no CCJs and no missed payments, you may find that your credit score is harmed if you use too much of your available credit. If you’re in the hunt for finance, it can be a good idea to pay off your cards and loans to the point that you’re using less than 50% of the amount of money you have available. This doesn’t mean that you have to pay off all of your debts, but get them into a healthier position, which could help lenders view your application much more favourably without having to make too many drastic changes.

While having too much credit and too many debts can be a problem for some borrowers, others can have the opposite issue, and find that their credit history is too short to be considered by banks. This is most commonly a problem for young people just starting out in the world of finance, but can also be a problem for immigrants of any age if they don’t have a history of finance in the UK. While there are no immediate fixes to this, one thing people without a credit history can do is to take out a small loan or a small contract agreement and to pay it off regularly and in full. While it may not be much, it’s evidence to lenders that you have the financial skills to keep up with loan payments and to borrow within your limits, which will make them consider you favourably in the future. There are even special credit builder cards and bank accounts designed specifically for this purpose, which will allow you to take out larger and larger amounts of credit over time until you have a full credit history in your name.

Summary

Credit scores can be confusing, but the best thing you can do is have as much information as possible about yours at your fingertips so you know where you stand. Remember, even if your score is poor, there’s no such thing as a hopeless case, and there are products you can use, as well as ways to improve your score, if you need to.