Credit scores and ratings explained
A good credit score usually means lenders will offer you better deals and lower interest rates. But what is a good score and how can you improve yours?
What is a good credit score?
There’s no single answer to ‘What is a good credit score?’ because the three main UK credit reference agencies (CRAs) – Experian, Equifax and TransUnion – all score consumers differently. But generally speaking, the higher your score, the better the borrowing rates and deals you can get, so you should aim to be at the upper end of the CRAs range.
Experian scores run from 0 to 999 and a good score is anything from 881. With Equifax, scores generally run from 300 to 700 with anything over 420 considered good.
Our Credit Monitor service uses credit information from TransUnion, where scores range from 0 to 710 and a very good score would be anything from 604 and above.
The following table shows the range of Credit Monitor’s scores and what they mean:
How is my credit score calculated?
When you apply for a credit card, loan or mortgage the lender calculates your credit score based on your credit report, details on your application form, plus any information they already have about you (if you’re an existing customer for example).
Credit reference agencies also calculate their own version of a credit score, which you can use as a guide and view for free.
Your credit report shows your financial history and is usually of primary importance in calculating your score.
Payment history: If you have a history of paying bills on time, this can be good for your credit score. On the flipside, if payments are made over 30 days late it will typically be reported by your lender and could harm your credit rating. Any accounts in arrears, CCJs against you or a bankruptcy will all seriously dent your score. Most negative marks – including late payments – stay on your file for seven years.
How much you borrow: The main consideration isn’t the amount borrowed, but how much of your available credit lines you’re using. This is called your credit utilisation ratio, which sounds like complex jargon but is simply a percentage calculated by dividing the amount you are borrowing by your credit limit. Lower utilisation ratios are usually better because it shows you’re not financially stretched. To lower your ratio, pay down credit card balances or increase card limits.
Length of credit history: Boost your credit score by showing you can manage credit accounts responsibly over a long period of time. While there is no quick fix, becoming authorised on another existing account the primary holder has held for years could help strengthen your score.
New credit: When you apply and open a new account, your credit history is reviewed - which leads to a ‘hard search’ on your credit file. These ‘hard searches’ show up on your file and other lenders can see them. It means if you have lots of searches on your file in a short space of time it can lower your credit score because it could indicate to lenders that you’re desperate to borrow and keep getting turned down.
Type of credit: Having a mixture of credit accounts, such as cards, loans and a mortgage can improve your score. This is because it shows lenders you can responsibly use credit. But this doesn’t mean you should take out a loan just to boost your rating.
What is the credit score range?
A credit score range gives you a guide to how good your credit score is – which helps determine how likely you are to be offered the best deals on credit cards, loans and mortgages.
The various credit reference agencies use different ranges, but MoneySuperMarket’s Credit Monitor, backed by TransUnion, uses the following credit scoring range:
0-550 – Very poor: Your chances of getting a credit card or loan may be limited. While you may still be able to borrow, it could be best to improve your credit score to help you find a better deal
551-565 – Could be better: If you apply for credit, you have a chance it’ll be approved – but you are unlikely to receive the best deals and could be offered lower credit limits and face higher interest rates
566-603 – Pretty good: If approved, you should be offered reasonable deals for borrowing on credit cards, loans and mortgages, but they may not be market-leading
604-627 – Very good: You’re likely to be approved for credit, but may not be offered the very best deals
628-710 – Excellent: It’s very likely you’ll be offered the best deals on the market for credit, but there are no guarantees because each lender works from their own criteria
What are the benefits of a good credit score?
It’s easy to underestimate how many times in life we need access to credit. Credit cards, loans, mortgages and even a current account with an overdraft facility, all give us a way to borrow money. Your credit score might also be checked when you apply for a mobile phone contract, for example.
A good credit score can help you get the best deals because it gives lenders faith that you can repay on time and in full. This means customers with a good credit score are likely to be offered better deals because they are seen as less of a risk.
With a good credit score you can benefit from:
The ability to borrow more if you need to: Lenders will typically grant higher credit limits
Lower interest rates: Every pound borrowed will be less expensive to pay back
More options: The best deals on credit cards, loans, mortgages and even current account overdrafts are usually offered to those with the highest credit ratings
How do I get a good credit score?
While there is no quick fix to improving your credit score, there are various ways to nurture your rating over time. Here are our top tips:
1. Register on the electoral roll
One of the easiest ways to boost your score is by getting on the electoral roll. It’s free to register on the electoral commission website.
2. Demonstrate financial stability
One of the best ways to improve your credit rating is to manage your debts well. Don’t miss any monthly repayments, stick to the payment deadline, and stay within your credit limit.
3. Check your credit report annually
Review your report regularly to check all the information held about you is correct and amend any errors if you spot them.
4. Close old accounts
You might owe nothing on a card, but the lender will look at all your available credit lines before it makes a decision on your application.
5. Cut financial links with previous partners
If you have any joint financial products they might influence a lender’s decision. Ask credit rating agencies to add a ‘notice of disassociation’ to your file if you have cut ties with an ex-partner.
6. Consider a credit builder card
Prove you can manage your debts sensibly and it should grow your credit score. Interest rates on credit cards for low credit scores are generally high so only consider this option if you can keep your borrowing under control.
What if I have bad credit?
You may have a bad credit score for a few reasons. It could be you’ve missed payments or defaulted on what you owe in the past. Alternatively, it may be that you’ve never applied for credit before (if you’ve just turned 18, for example) or have just arrived in the UK, so haven’t had the chance to build up a credit history.
If you have bad credit or a low score, you may have to accept that you will have less choice of products when it comes to credit cards, loans and mortgages, until you’ve built up your score. You’re also likely to be offered a lower credit limit and deals with a higher interest rate.
You do have options though. There are credit cards designed for people with bad credit. These are called credit builder cards and allow you to show you can act responsibly with your finances to help build your credit rating.
How to keep track of your credit score
You can also request a free copy of your credit file from all three credit reference agencies – TransUnion, Experian and Equifax. It’s worth checking the information held on you by all three companies because they're likely to be slightly different.
The Consumer Credit Act gives you the right to obtain your full statutory credit report at any time for free, either online or by post.
If you spot a mistake on your file, contact the relevant agency and ask for a correction, explaining why it is wrong and supplying any appropriate supporting evidence.
Other helpful guides
For more information about managing your credit score, have a look at more of our useful guides, including...
Check your score with MoneySuperMarket
Even if you already know your credit score our free credit monitor service is a useful tool which can help you keep on top of your credit history and rating, and boost it as high as possible.
It’s quick and simple to use and can give you an up-to-date credit score and provide tips on how you can improve it.