How does the UK credit score system work? A comprehensive guide

Your credit score is like your financial CV. 

Suppliers and lenders will use it to verify your identity and gauge your credibility. If you keep a healthy credit score, you’ll have wider access to credit and loans, and your reputation amongst creditors and suppliers will strengthen your financial options.

To understand what constitutes your credit score, you’ll need to understand the UK credit score system. 

In this article, we’ll look at how the UK credit score system works so you can set yourself up for the best financial opportunities.

Table of contents

• Why are credit scores important?
• How are personal and business credit scores calculated in the UK?
• What’s in a UK credit report?
• How to check and improve your UK credit score
• Wrapping up

Why are credit scores important? 

Your credit score is like a visa that gives you access to types of credit and lending opportunities, like taking out a mobile phone contract, financing a car or getting a mortgage.

When you apply for a loan, lease or retail credit in the UK, lenders pull a credit report to check your financial history. Your credit score is included in this report, and it rates your creditworthiness according to your financial history. 

Lenders will likely examine your score and explore the good and bad activities in your report. Creditors want to see that you have a reliable track record of paying your bills before they approve you for funding. 

While lenders consider other factors like your income or account history, your credit score is critical. Here are just a few of the lending decisions creditors make based on your credit score, among other factors:

• Whether to approve or deny your application
• What your credit limit will be
• How high your interest rates will be

Your personal credit score can also impact your access to business capital. If your business is new, it can take time to establish a business credit score. Until then, creditors consider your personal credit score in any loan applications. 

Top Tip: Building a good business credit score is important, but it takes time. Learn what makes a good business credit score and 14 ways to improve it in our guide to business credit scores ⏳

How are personal and business credit scores calculated in the UK?

Some countries hold a type of “universal credit score” for each individual with a borrowing history. In the UK, things work differently.

The UK credit score system centres around three main credit reference agencies (CRAs): Experian, Equifax and TransUnion. Each one collects information from creditors and factors these into an algorithm that calculates your credit score. 

Each CRA uses a unique rating scale and may receive different data points. As a result, your credit score rating differs between agencies. 

10 activities that affect your personal credit score points 

While the CRAs are somewhat secretive about their formulas, these activities are known to have a big impact on your score. 

1. Defaulting on credit agreements. Unfortunately, failing to pay back what you’ve borrowed is the biggest way you can damage your credit score and will affect your score for up to six years. 
2. Receiving a County Court Judgment. A CCJ, or a court summons for debt collections, will bring down your score quite harshly.
3. Late payments and missed payments. Paying late or missing just one repayment can hurt your credit score. 
4. Staying under or going over your credit limit. CRAs penalise you for using more than 90% of your credit limit and reward you when you stay well under your limit. 
5. Too few credit accounts. CRAs want to see that you can make payments with multiple accounts over time. 
6. Paying off your credit card each month. Lenders like to see that you can clear your balance each month and avoid the snowball effect of interest.
7. No account changes for six months. Lenders like to see financial consistency, stability and longevity.
8. More than £15,000 in credit card debt. Lenders view excessive debt as a risk factor and may decide that you can’t keep up with additional debt. 
9. Updating your electoral registration. Signing up for the electoral register helps CRAs verify your identity. 
10. Holding the same credit card for over five years. Sticking with the same credit card carrier also demonstrates consistency, stability and longevity that lenders like to see. 

What is a good personal credit score? What is a good business credit score? 

As we’ve covered, TransUnion, Experian and Equifax assign you a personal credit score number between 0 and 1,000 based on your credit history. Each lender uses a different scoring system.

This number places you in one of six brackets based on a credit score range, usually from “Very Poor” to “Excellent” (these vary slightly by CRA). 

This rating tells creditors how likely you are to repay your bill. It also tells you how likely you are to receive credit and the good interest rates. Remember, if your business is new, lenders will use your personal credit score to evaluate your creditworthiness for a loan.

What impact does your credit score bracket have? Here’s how Experian categorises your potential for credit with each bracket:

• Very poor. You’re more likely to be refused most credit cards, loans and mortgages.
• Poor. You might be accepted for credit cards, loans and mortgages but they may have higher interest rates.
• Fair. You might get OK interest rates but your credit limits may not be very high.
• Good. You should get most credit cards, loans and mortgages but you might not get the very best deals.
• Excellent. You should get the best credit cards, loans and mortgages (but there are no guarantees).

The buckets are useful in showing that there’s a wide range to credit scores; it’s more complex than just “good credit” and “bad credit”. 

In addition to predicting your likelihood of being approved for credit, they predict the quality of rates and diversity of credit options you may be offered. 

Top Tip: Want to know more about where you stand? We dive into good credit scores and poor credit scores, and what to do if you fall into the latter category, in our article on credit score brackets 💳

An introduction to business credit score brackets

Like your personal score, your business score signals your creditworthiness to potential lenders. CRAs factor in a business’s longevity, financial history and credit utilisation ratio in its business credit score. Business credit scores range from 0 to 100, with 100 being the highest possible score.

As you can see from Experian’s business brackets below, there’s a wide range of categorisations. For the best possible rates and credit limits, aim for a score above 90.

What’s in a UK credit report?

A credit file or report is a document containing a detailed financial history and credit rating for you. A credit score is the number that the CRA assigns to you on a scale of 0 to 1,000. 

Here is what a credit report contains in the UK:

• Public records. Your registration on the electoral rolls, any county court judgments (CCJs), insolvencies, or bankruptcies. 
• Address history. A list of current and former addresses. 
• Credit applications. How many applications for credit you’ve made, including those not approved. 
• Financial history. A list of your active credit cards, loans, mortgages, mobile phone contracts, or car loans. 
• Negative financial events. Any overdrawn accounts (not including within authorised overdraft limits) and late or missed payments. 
• Financial associates. Anyone with whom you share a joint account, mortgage note, or loan.

Lenders want to see that you are a real person with a verified address. They want to see that you have a history of managing multiple bank accounts and that you pay your bills on time. 

Crucially, they want to note any red flags like defaults, insolvencies or CCJs. They also want to make sure that you don’t already have too much debt relative to your income. 

How to check and improve your UK credit score

If you’re not sure what your credit score is, you’ll want to find out. You may have heard that checking your credit score negatively affects your score, but there are ways to check it (called a “soft check”) that don’t affect your score at all.

How to check your credit score for free in the UK

Consumers have a right to access their credit report for free under the UK’s Consumer Credit Report of 1974. 

Here are several websites where you can check your credit score:

• ClearScore offers a free credit report and score using data from Equifax. ClearScore updates its reporting weekly and provides insights about ways to improve your score. 
• Credit Karma (formerly Noddle) also offers a free credit report using data from TransUnion and updates its report weekly. 
• A free Experian account offers consumers a chance to check their score with updates every 30 days. 
• CheckMyFile offers a 30-day free trial to check your score. The advantage of this tool is its side-by-side comparison of your score at all three CRAs: Equifax, Experian and TransUnion.

You can check your credit score with the CRAs directly. They have limited features with a free account and will prompt you to create a paid account after a free trial to access their full features, including report changes and tips to improve your score.

Checking your business credit score

As a business owner, it’s important to know your business credit score before applying for a loan. Though there are some free options, a business credit reporting service is an investment that may save you money in the long run.

• Creditsafe offers a 30-day free trial to check your business credit score or the credit score of another business you work with. 
• The My Business Profile service by Experian (with a three-month trial option) monitors your business credit score, identifies five top factors affecting your score and alerts you in real-time to any changes. 
• Equifax offers businesses the right to request a Business Statutory Credit Report by submitting an application. Once Equifax has finished security checks and accepted the application, they will mail a credit report within seven days. 
• Credit Passport offers both free and paid subscription models with varying features to understand and monitor your business credit. Credit Passport’s reports use bank data to create its insights. 
• D&B Credit Monitor is a business credit reporting service by Dunn & Bradstreet that informs customers about their credit score, payment score and cash flow risk score. 

Top Tip: Checking your business credit score lets you know your eligibility to get financing. It’s different to checking your personal credit score, however. Learn how business credit scores work plus more ways to check in our guide on how to check your business credit score 🔎

Ways to improve your credit score 

There are many things you can do to improve your personal credit score. Some can be done quickly, while others take time. 

• Open two or more accounts that will appear on a credit file. If you don’t have a credit history, you won’t have a good score. 
• Don’t borrow more than you can afford. 
• Pay your bills on time every month. If you can’t pay the balance in full, pay at least the minimum payment amount. 
• Monitor your accounts and report any errors, fraud or lost cards. 
• Register on the electoral rolls, and update your information if you move. 
• Don’t apply for multiple credit cards at once. Too many credit applications can be a cause for concern, especially if some are rejected. 
• Keep well below your credit limit. Under 30% is best. For instance, if you have a credit limit of £5,000, borrow no more than £1,500. 
• Hold onto your cards for at least five years. CRAs give you bonus points for longevity of accounts.  

Top Tip: There are things you can do to improve your business credit score. Learn how to qualify for better business financing options in our guide on how to increase your business credit score 📈

Wrapping up

Once you understand how the UK credit score system works, you have the knowledge you need to work toward your financial goals. 

First, know your score. Use one of the recommended sites above to check your credit report and set up monitoring to prevent errors or fraud from impacting your score. Next, write down your goals, whether it’s a new business line of credit or improved rates and limits for existing ones. 

Last, follow our tips and guidance to make the UK credit score system work for you. While there is no magic bullet to fix your credit overnight, you can start good financial habits to raise your score over time.

Photo by Andrea Piacquadio, published on Pexels