Average Credit Score in the UK, 2023: An Inside Look
Before you can get a loan in most places in the UK, you need to have a good credit score. Your credit scores, which are like grades, affect how easy it is for you to get a loan and other financial products. Your chances of being accepted increase as your score rises.
This article will talk about the average credit score in the UK in 2023, how it is made, and what factors go into it. We will also talk about what a good credit score is and how to get one.
Key Takeaways:
- Two important criteria that affect your credit score are payment history and debt-to-income ratio.
- A decent credit score requires timely payments and a balanced debt load.
- Your credit record only lasts six years, so keeping it clean is critical. Any missed payments or debts should be resolved with subsequent timely payments, likewise, too many new credit applications can lower your score.
- Missed payments or debts must be followed through, as too many credit payments lower credit scores.
- Credit scores are different from credit ratings. Credit scores are for individuals and small businesses, while credit ratings are for large entities like corporations.
Credit Score Definition
A credit score is a number that shows your financial history. Based on the details in your credit report, credit reporting agencies compute it, showing how likely it is that you will pay back the money you borrowed on time and in full.
Lenders will ask for your credit score before granting you a loan, accomplishing this by contacting credit reference agencies (CRAs). Experian, Equifax, and TransUnion continue to be the three largest CRAs in the United Kingdom that lenders use to evaluate your creditworthiness. Crediva, a different system, is an alternative to these three.
Based on FICO and VantageScore credit scores, the three biggest credit reporting agencies (CRAs) all use a similar range of 300–850 for credit scores. Even if you have a pristine credit history, your lenders may see different ratings from each CRA. When this occurs, they verify your credit history with all three, choosing to give you the loan at the end or not.
Checking Your Credit Score and Why It Is Important
Your credit score may be accessed in a number of different ways. Equifax, TransUnion, and Experian are the three main credit reporting agencies that will provide you with a free copy of your report if you ask for one. If you sign up with Equifax, for instance, they will send you six free copies of your credit report each year.
By law, you can get a free copy of your credit report from each credit bureau once every 12 months if you ask for it through a third-party credit score provider. Your lender or credit card issuer should be able to verify your score as well, going further to determine the accuracy of your free credit report when you get it.
What Is a Good Credit Score in the United Kingdom In 2023?
A score between 881 and 960 is considered excellent. You should be aware that the criteria used to establish excellent credit ratings and terrible credit scores are different. A credit score under 600 is generally considered substandard. A score of 600 or above is usually acceptable.
However, a good credit score according to one credit bureau may not be the same as another. The three bureaus employ unique algorithms to determine your credit rating. Because of this, you’ll get different ratings from various sources.
In the United Kingdom, How Would Credit Scores Be Calculated In 2023?
In the UK, Experian, Equifax, and TransUnion compute credit scores, getting information about your financial history from different places, such as lenders, banks, and utility companies. Then, they put the information together to make a credit report and use a professional scoring algorithm to figure out your credit score.
The data in credit reports, however, is only valid for six years. Hence, whether you have a paid or outstanding debt on your credit file, the credit reference companies will erase it after that time. The bottom line is to keep your credit report clear, to keep monitoring it, and to make sure you get the best terms when applying for loans or credit cards.
Your Credit Score and Other Factors
It is important for people to understand how their credit score is calculated and how it affects them. Some of the most prevalent things that might affect your credit score are:
Bank Account Statements
If you want to keep your credit score high, pay all of your bills on time. Your credit score may suffer if you make late or no payments at all. Missed payments in the UK remain on your records for six years until you make them up.
Amount Due
Having a healthy ratio of debt to income is very important, since debt makes up 30% of your credit score. In the UK, lenders often look at how much a borrower owes compared to how much money they make each month. Try to play the safe card by making sure your debt-to-income ratio doesn’t exceed 36% of your monthly income, as the likelihood of being deemed a high credit risk increases with your debt-to-income ratio.
Extent of Credit Record
To calculate your credit score, UK lenders use the average age of your accounts. Your average account age will be 10 years. For instance, if you created one credit account in 2013 and another in 2023, your average account age has a direct correlation to your credit score.
Credit Repair
Your credit score will be impacted every time you apply for a new line of credit, such as a credit card, mortgage, or loan. Being careful about how many applications you submit in a given period is important, as each one could lower your score, making lenders reluctant to work with you because of the large number of accounts you've established in the last year.
Blend of credit
A healthy mix of different types of credit accounts will help lenders understand that you can manage other types of debt, which you can use to establish a positive credit history. For instance, a mortgage or vehicle loan on your report shows that you can make monthly payments on schedule, and that alone boosts your score.
Credit Score vs. Credit Rating (2023 Comparison)
Since credit scores and credit ratings are often used interchangeably, even though they are not the same, here is a comparison to help you understand them better.
From the highest (AAA) to the lowest (D), a letter grade indicates a person’s capacity to fulfill their obligations on time and in full. If a credit rating agency has granted you an A, it means they think you pose a low risk of going against an agreement when they need their money back.
The three main credit reference agencies that look at credit scores are Experian, Equifax, and TransUnion. Standard & Poor’s (S&P), Fitch Group, and Moody’s Investor Services are in charge of credit ratings.
Credit ratings are an evaluation of a company’s or government’s financial health and creditworthiness. This is different from credit scores, which measure an individual’s ability to pay back a loan. Hence, a credit score is to people what a credit rating is to organizations.
Credit Score Range: What’s the Average in the UK (2023)?
FICO and VantageScore set the range for the majority of credit scores in the US, which is 300 to 850. In the United Kingdom, different credit reference agencies have different ways of figuring out a person’s credit score.
Experian’s range is 0 to 999, Equifax’s is 0 to 1000 (from 0–700 in the old scoring system), and TransUnion’s is 0 to 710. Here is information regarding each CRA’s average credit rating.
Experian
Experian, according to its average credit score report for 2023, put it at a benchmark of 797, calling it a fair one. Still on this, lenders have the wherewithal to call the shots, considering what score is acceptable or not.
Equifax
For Equifax, it places its score at 380 for 2023, following ClearScore estimates, and calls this average fair but not absolute for most lenders.
TransUnion
Here, 571–710 is its average score range for 2023, calling it unique and again saying it’s subject to lenders’ choice.
Credit Scores Based on Age
Some indicators help you gauge where you are in terms of your credit score. You can’t base your credit score on your age alone. But, according to FICO, the average credit score of a specific age group is greater than that of a different age group.
This is due to the fact that certain age groups have more experience with financial matters and how they impact their lives. Below is a table that provides a snapshot of typical credit scores by age group.
The United Kingdom’s Regional Credit Ratings
Numerous parts of the United Kingdom have noticeably different average credit scores. There are numerous different areas in the United Kingdom, and the table below looks at the locations that have the highest credit ratings.
Income-based Credit Score
Generally speaking, the stronger your earnings, the better your credit score will be. The Federal Reserve Bank of New York compiled data on typical credit scores by income level, which are shown in the table below.
All tables are sourced from the Federal Reserve Bank of New York (for an income-based credit score), Experian (for the United Kingdom’s regional credit ratings), FICO (for a credit score based on age and a blend of credit), Equifax, and TransUnion.
High Credit Score and How It Affects You in the UK
Having a high credit score is important for a variety of reasons.
Credit Availability
If you have a high credit score, lenders know you are a responsible debtor who will pay back loans on time. This is why loan officers look at credit reports before deciding whether or not to give credit. If you have a low credit score, you may have trouble being accepted for any loan, including a mortgage.
Lessening of Interest Rates
If your credit score is high, you are a low-risk borrower. You’ll be able to get better rates on various kinds of loans, including credit cards, mortgages, car loans, and more. It will also help you save a lot of money in interest payments throughout the course of your loan or credit account’s lifetime.
Improved Financial Terms
Better credit conditions are one more benefit of having a high credit score. If you have an excellent payment history and a high credit limit, the card issuer may decide to boost your credit limit. If you’re planning any major purchases in the near future, this may come in extremely handy.
Coupons for Insurance
If you have a high credit score, insurance companies may offer you a lower premium. Customers with excellent credit histories may often get lower rates on auto, health, and life insurance policies from a variety of providers, saving hundreds of dollars a year on insurance rates by maintaining a good credit score and fiscal discipline.
Credit Repair Strategies for the Year 2023
The following are some suggestions to help you get started on the road to a better credit score:
Do a Credit Report Check
Make it a habit to check your credit report once a month to make sure the details are correct. You can dispute the wrong information with the credit reference agency that gave it to you in the first place. Keep in mind that the process of correcting an error might take anywhere from three to six months.
Cancel Your Debts
Debt reduction is one strategy for raising a good credit score. Make an effort to negotiate better terms with your creditors if you’re having trouble keeping up with your debt payments.
Reduce Your Credit Card Debt
Keeping a low balance on your credit cards is a big part of improving your credit score and making sure that lenders see that you’re a responsible credit user. This will aid them in deciding whether or not to provide a loan to you.
Make Use of Many Credit Options
Having a wide variety of credit accounts is a plus (as long as you open these accounts, take their loans, and pay on time). Credit cards from more than one bank or issuer show potential lenders that they can count on you to pay on time. It also demonstrates to them that you can handle financial matters independently.
Know This
Getting the best loan deals in the UK is based on understanding your credit score and paying off debt as it becomes due. With this, you can keep an eye on your finances, build up your financial goals, and live a credit-free life in the UK.
