How does the UK credit score system work?

23 JULY 2024 | 4 MIN

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. We’ll kick off with personal credit scores before giving you a brief intro to business credit scores and what to expect from Credit Score Insights.

What is a personal credit score?

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 personal 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.

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 for personal and 0 to 100 for business credit scores.

Here is what a personal credit report will generally contain:

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 are personal 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.

What is a good personal 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 brackets 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.

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. Your score can roughly be read as follows:

71–100 very low risk

51-70 low risk

30-50 moderate risk

1-29 high risk

How Credit Score Insights works

Credit Score Insights is a quick and powerful way to get the most out of your business credit score.

Via the dashboard, you’ll be able to see your credit score and how accessible funding from lenders could be.

It also indicates the factors that could be affecting your score, in a positive or negative way. And if there are changes to your business credit score, then you’ll know about it via the monthly alerts.

Knowing what your score is and why can give you the opportunity to take the necessary actions to improve your score.

Why is this a good thing? Well, the better your business credit score, the more finance options you’re likely to have and with better terms.

And to help you make sense of the world of business credit, you’ll also find a wealth of educational tips and resources in the Knowledge Hub.

What’s next?

Stay with us – over the coming months, we’ll be sending you everything you need to know about business credit scores straight to your inbox.

We’ll dig deeper into how business credit scores work, why they’re important, ways to improve your credit score, what a bad credit score means for business, and so much more.

In the meantime, check your Credit Score Insights to see where your business is currently at. The more you know, the more informed actions you can take to better your credit outlook for your business!