What Is a Credit Score and Is It Important?

We’ve all been worried about our credit scores before. It’s such an ominous term! Lenders use credit scores as a tool to establish your eligibility for a given credit card, loan, mortgage, or service.

Lenders will make decisions on your applications for credit based on a score which is determined by the credit reference agencies, based on your credit history. They will use the details on your credit report, and any extra information you provided, as part of your application. Your score demonstrates the type of borrower you are, and the likelihood of whether you will be able to make your payments.

In order to create a credit score, the three major credit reference organisations in the UK each gather information about you from public records, lenders, and other service providers. But what is a credit score exactly, and what is a good credit score? Let’s explore all about credit scores in the UK, with some expert tips and tricks to help you breeze through it all. 🍃

What Is a Credit Score?

Every person over the age of 18 in the UK is assigned a number to demonstrate their creditworthiness. Experian, Equifax, and TransUnion are the three major Credit Reference Agencies (CRAs) that all lenders use to determine an applicant's creditworthiness, using a methodology that varies from one lender to another. 

There are a number of subscription services that can tell you someone's credit score, sometimes for free and sometimes for a price. The most well-known free service is ClearScore, which calculates credit scores using Equifax data. By the way, every credit agency is required by law to give you free access to your credit score, so don’t spend any unnecessary money. But this will only be a basic check, you might have to pay a small sum to get a more detailed report. 

What Is the Average Credit Score UK?

Are you wondering what is the best credit score you can get, what is bad, and what is average? It is difficult to establish an average for the whole of the UK because there are three separate notations used to calculate credit ratings. With Equifax and Experian, the average credit score in the UK is 383 and 759, respectively. Experian, Equifax, and TransUnion are the three primary Credit Reference Agencies (CRA) in the UK. It's crucial to understand that each CRA uses a distinct scale when determining a credit score.

Five categories for credit ratings are used by the majority of the big credit rating agencies: excellent, good, fair, poor, and extremely poor. Each credit rating agency (CRA) will assign you a different credit score since each CRA calculates your credit score using a different numerical scale. The bottom line is that it’s more useful to pay attention to your credit category than your exact credit score since it varies from one credit agency to another. A good credit score at Experian might not be good at Equifax, for instance. 

What Is a Bad Credit Score?

Regardless of which credit agency you're looking at, your credit score will be worse the lower your number. In the same way, the higher your score, the more probable it is that you will be approved for credit and receive the best possible rates on things like credit cards, car finance, other loans, and mortgages.

Two benefits come with a high credit score. One is that your chances of obtaining a mortgage are higher and your chances of being denied a credit card or mobile phone contract are lower. The second is that when someone is approved for a loan, the interest rate offered will usually be lower with a good credit rating. This could end up saving you hundreds or even thousands of pounds in interest on a loan. 

How to Get a Better Credit Score

Though it may seem slightly daunting, improving your credit score is actually something that can be done with a bit of work. Some steps you can take include: 

  • Creating a credit history for yourself. Companies may find it challenging to evaluate you if you have little or no credit history, which could result in a lower credit score. Young people and people who are new to the country frequently experience this issue. 
  • Pay regular bills on schedule. An excellent method to demonstrate to lenders that you are a dependable borrower and capable of handling credit responsibly is to pay your debts in full and on time each month. 
  • Think about getting a credit builder card. A credit builder card can assist in rebuilding your credit score if you're trying to increase your credit rating. They often have high-interest rates and minimal spending caps. Your credit score could briefly decline when you initially receive a credit card. However, if used properly, it can eventually aid in raising your score. These credit building cards can be useful (on everyday essentials you were going to buy anyway). Then, to prevent paying interest, make sure you pay off the card in full and on time each month. But basically any credit you apply for, such as a car loan for example, will build your score as you continue to make regular and timely payments.
  • Keep an eye out for fraudulent activity in your credit report. Your personal information could be used by fraudsters to obtain credit without your knowledge if they have access to it. 
  • Maintain minimal credit usage. The amount of your credit limit that you have used is known as your credit usage. Your credit usage is 50%, for instance, if your limit is £2,000 and you have spent £1,000 of it. A smaller proportion is typically viewed favourably by lenders, which raises your credit score as a result. Try to limit your credit usage below 30%, if at all possible.
  • Proving your residence. Register to vote at your present address - you can do this even if you live with your parents or in shared housing.
  • Keep previous accounts open and have a lengthy credit history. Especially over an extended period of time, it can be beneficial to demonstrate your ability to efficiently handle numerous credit accounts to lenders. The majority of credit rating algorithms favour long-standing, mature credit accounts and sparingly using your credit limits. 
  • Check for mistakes and note any on your report. Even little errors, like a mis-spelt address, might lower your score and cause a lender to deny you credit. Check that all of the information on your credit report is accurate and current by examining it. If you do find a problem, get in touch with the credit agency and request that they fix it. Ask them to add a Notice of Correction to your credit report explaining any bad information that is true but occurred under unusual circumstances (such as being hospitalised for a while or losing your job).

The Bottom Line

Are you wondering what is a good credit score to finance a car? Car finance works quite similarly to other types of finance. There is no minimum required credit score for purchasing a car on finance. Your ability to get lower interest rates for car finance will however be significantly helped by having an excellent credit score. This is not to imply that, depending on which you apply with, you won't be able to receive vehicle financing with fair, low, or even bad credit

Looking for car finance? Hit us up here at Carmoola! We’ll give you an instant decision on our handy dandy app 👍🚙