How Do Credit Scores Work in the UK?

A credit score is like a financial report card. It’s a number from 0 to 999  that shows how well you’ve managed your money and credit.

The higher your score, the better your ‘grades’. This score comes from credit reference agencies – which are Experian, Equifax, and TransUnion. Each agency uses a slightly different scoring system.

Here’s a look at what counts as excellent, good, fair, and poor scores for each of them:

Credit StatusExperianEquifaxTransUnion
Excellent961-999800 – 850781 – 850
Good881-960670 – 799721 – 850
Fair721-880580 – 669661 – 770
Poor300 – 720300 – 579300 – 660
Credit Score Ranges in the UK 2023. Source: Experian, Equifax, and TransUnion websites.

Moreover, credit score can be based on factors like your payment history, how much debt you have, and how long you’ve had credit.

How Your Credit Score Influences Your Mortgage Application

When you apply for a mortgage, lenders want to know whether they can trust you to repay the loan on time. 

Your credit score helps them make this decision. It’s like a report card of your financial habits. The better your score, the more reliable you appear in the eyes of the lender.

For instance, if you have a high credit score, lenders are more likely to approve your application. Not only that, but a good credit score can also secure you more favourable interest rates. 

This is because you’re viewed as a low-risk borrower, so lenders are willing to offer you better terms.

On the other hand, a low credit score may result in your mortgage application being declined or, if approved, at higher interest rates. 

But don’t worry, even if your credit score isn’t where you want it to be, you can always improve it.

Tips to Improve Your Credit Score for a Mortgage

Improving your credit score might seem like a complex task, but with the right strategies, you can enhance it over time. The following sections will guide you through this process.

Download Your Credit Reports

Before you can start improving your credit score, you need to understand where you stand. And that begins with downloading your credit report.

Your credit report is a detailed record of your credit history, and it’s used to calculate your credit score. 

It’s like a report card of your financial history, including details of past and present credit accounts, repayment records, and any late or missed payments.

As mentioned earlier, in the UK, there are three major credit reference agencies: Experian, Equifax, and TransUnion. 

Each agency might have slightly different information about you, so it’s a good idea to get your report from all three.

Here’s a step-by-step guide on how to get your credit report:

  • Step 1: Visit the official websites of Experian, Equifax, and TransUnion.
  • Step 2: Follow their respective processes to request your credit report.
  • Step 3: Review each report carefully and ensure all the information is correct.

If you find any discrepancies or outdated information on your report, reach out to the respective agency and dispute those errors.

Ensuring Your Credit File is Accurate and Up-to-Date

Keeping your credit file accurate is essential to maintaining a healthy credit score. Any inaccuracies, such as a wrong address or a wrongly reported late payment, can unfairly bring down your score. 

Therefore, it’s crucial to regularly review your credit reports and ensure all the information is correct.

If you spot any discrepancies or outdated information in your reports, you should raise a dispute with the relevant credit reference agency. 

They’ll investigate the issue and, if your claim is valid, correct the information. By doing this, you make sure your credit score is a fair reflection of your creditworthiness.

Here’s a quick checklist of things you should verify in your credit report:

  • Personal details – Check your name, address, and other personal information for accuracy.
  • Account details – Ensure all your credit accounts are listed and their details are accurate.
  • Payment history – Confirm that your payment history is correct. Look out for any wrongly reported late or missed payments.
  • Hard enquiries – Hard credit checks should only occur when you apply for credit. If you see any you don’t recognise, you could be a victim of identity fraud.

Review Your Financial Connections

Being linked to someone financially can impact your credit score. This can occur through joint accounts, which many people aren’t aware of. Ensure you aren’t unnecessarily tied to someone, and request disconnection from outdated links.

Financial links often occur with ex-partners or shared accounts used for managing bills in shared living situations. 

Also, note that when buying a property with a partner or friends, your joint mortgage creates a financial link, meaning your credit history could affect your future credit applications.

Manage Your Finances and Debts Responsibly

Building a good credit score goes beyond just correcting inaccuracies in your credit report. It also involves developing financial discipline. 

This can seem challenging at first, but with time, it becomes a habit that leads to a healthier financial life.

Here are some ways to build financial discipline:

> Budgeting

Create a monthly budget that outlines your income and expenditures. This helps you manage your money better and ensures you have enough for your monthly debt repayments.

> Timely repayments

Always pay your bills and debts on time. Late or missed payments can harm your credit score.

> Maintain credit balance

Try to keep your credit card balance low. A high credit utilisation ratio can negatively affect your score.

> Limit new credit applications

Too many hard enquiries on your credit file can make you seem credit-reliant, which can bring down your score.

> Settle your debts

If possible, pay off your outstanding debts. This can positively impact your credit score and make you more appealing to lenders.

Remember, building a good credit score is not an overnight process, but with consistent effort, you’ll see your score improve.

Four-quadrant infographic illustrating key financial habits for a better credit score, including budgeting, timely repayments, maintaining a low credit balance, and wisely applying for new credit.

Register on the Electoral Roll

It might seem surprising, but being registered on the electoral roll can give your credit score a nudge in the right direction. 

This is because credit reference agencies and lenders use the electoral roll to verify your identity and residence. 

This information is key to fraud prevention, and so, being on the electoral roll can boost your credibility in the eyes of the lenders.

Enrolling is simple and can be done online, by post, or in person. You’ll need to provide some basic information, such as your name, address, nationality, and date of birth. 

Once registered, your details will appear on your credit report, thereby enhancing your reliability as a borrower.

Close Unused Accounts

When it comes to credit accounts, it’s not always a case of ‘the more, the merrier.’ In fact, keeping old, unused credit accounts open can have a negative impact on your credit score. 

Lenders may view multiple open accounts as a risk, thinking you could suddenly use all that available credit and potentially struggle with repayments.

So, it’s a good idea to trim down your accounts and close those that you’re not using. Start by making a list of all your credit accounts.

Review each one, and if there are any you haven’t used in a while, it’s worth considering closing them.

Be Wise When Applying for Credit

Contrary to what some may think, frequently applying for new credit can hinder your credit score. Each application creates a ‘hard search’ on your credit file, which lenders can see. 

Numerous hard searches in a short period can give the impression that you’re reliant on credit, making you seem riskier to lenders.

So, it’s crucial to be wise about when and for what you apply. Consider whether you genuinely need the credit, and if you do, make sure you choose a lender that’s likely to accept you based on your current credit score. 

You can often find this out by using lenders’ eligibility checkers, which only perform ‘soft searches’ that don’t leave a mark on your credit file.

Clear Outstanding Debt

In the world of credit, nothing weighs you down quite like outstanding debt. Not only does it give lenders a less positive view of your creditworthiness, but it can also significantly lower your credit score. 

This is because your credit score is, in large part, a reflection of your ability to repay borrowed money.

Paying off your debts can thus have a positive effect on your credit score, demonstrating to lenders that you’re a responsible borrower. So, if you’ve got any outstanding debts, it’s a good idea to create a plan to clear them.

Exercise Patience

Building a good credit history, amassing a large deposit, and securing an income sufficient for repayments and homeownership costs takes time. 

Nevertheless, understanding your credit status can benefit you significantly in the long run. It’s a process, but it’s definitely worth your patience.

Extra Tips for Expats: Handling Credit History from Abroad

Moving to the UK from abroad? Your overseas credit history doesn’t automatically follow you. 

But, there are ways you can bring this information across borders and positively impact your credit score here in the UK.

This can be a particularly beneficial strategy if you had a good credit history in your previous country of residence. 

Certain credit agencies have systems in place that allow them to transfer your credit history from overseas to the UK, giving lenders a better view of your financial habits.

Infographic summarising the essential steps to manage credit, including downloading reports, reviewing financial connections, and being responsible with finances.

The Bottom Line

Here’s a quick summary of the important points we’ve covered about improving your mortgage credit score:

  • Secure a copy of your credit report from the three main UK credit agencies – Experian, Equifax, and TransUnion. Review each report meticulously and rectify any errors or discrepancies you find.
  • Ensure your credit file is accurate and updated, including personal details, account details, and payment history. Stay vigilant for any hard enquiries that you don’t recognize.
  • Cut ties with unnecessary financial connections. Financial links, such as joint accounts with ex-partners or friends, can influence your credit score.
  • Actively manage your finances and debts responsibly. This includes making timely repayments, maintaining a low credit balance, and restricting the frequency of new credit applications.
  • Register yourself on the electoral roll. This simple act can help verify your identity and boost your credibility in the eyes of lenders.
  • Close any unused credit accounts. Too many open accounts can make you seem riskier to lenders.
  • Clear your outstanding debt. Resolving your debts demonstrates to lenders that you are a responsible borrower and this action can positively influence your credit score.

Taking these steps can boost your credit score, improving your chances of securing a mortgage. So, don’t delay. Start your journey to a better mortgage credit score today.