A guide on credit scores in the UK

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Credit scores are known as the number you have to use to get approval for any kind of debt. However, it is not just a matter of getting a good credit score and being granted approval as things are not that simple. Also, there are other terms to do with property that are used like tax credits used in section 24 that are completely irrelevant and may confuse you as you try to understand the topic.

So, from what a credit score is and why it is important to how exactly the score is calculated, this article will leave you with all the information you need to know once you read it clearly.

A credit card that is used to improve the credit score of a landlord

What is the Credit Score?

Credit scores are a number that is used to reflect the information found in a credit report. They are used to check the status of a credit report in general without having to look at the details of the report as a rough idea of what the report is like is given from an easy-to-read number.

In general, if a credit score changes, it is likely to do with something that changes in your credit history. But there are a range of reasons that this can happen too.

Contrary to popular belief, you do not need a credit card to have or improve your credit score. Credit scores can be impacted by credit card usage nonetheless.

What is a good credit score?

You can tell immediately what a good credit score is by having a check from a bank or a financial institution that will let you know like a credit referencing agency. However, it can be confusing as to what a good score actually is because there are three different types of scoring systems that all differ from each other.

Whatever the scoring system, there usually is a scale that goes from good to average to poor which helps you know what your score looks like in relation to the rest of the UK on average.

Typically as one type of score goes up or down, the rest of the scores follow. So, what type of score you choose to use as a comparison of change month to month shouldn’t really matter.

Nonetheless, there are still differences and this can result in different rates of approvals for loans based on what type of scoring system the lender checked in the application process.

Hence, is it crucial for a landlord or anyone who is applying for a loan to check all three before they apply so they can make sure there are no obvious mistakes on the report and things that make the report appear worse than it actually is.

Also, there has to be a consideration that the score is only an indication of what type of loan you can take out as a lender will still look at this score alongside other factors like a broader credit report.

Experian credit agency

Experian is the largest agency in the UK with a huge amount of information they use in their credit check. This agency uses a scoring system of 1 – 999. However, it is extremely rare for someone to have a credit score as low as 1.

For this agency, an excellent score starts at 961 which is seen as a score that will be able to apply for the highest levels of mortgages although it is vital you remember that this score is looked at alongside a credit report too.

Equifax credit agency

Equifax credit referencing agency has a range that starts scoring excellent scores at a much lower rate. For example, the threshold for this scoring system is 811 and over. It is interesting because the score for this system is still rated 1 – 1000 so the scoring system is more evenly distributed.

Someone checking their cards in online with Equifax to see their credit score

Transunion credit agency

Transunion uses a scoring system that is up to 710. In the same way, most of the categories are skewed towards the highest end of the scale. For this credit referencing agency, an excellent score starts at 628 and a poor score starts at 550. For a full breakdown of the distribution of this scale on Money Super Market click here.

Why do you need a credit score?

Having said this, having an excellent credit score isn’t the only thing you need to do in order to gain approval for a house mortgage. This is due to there also being a credit report that takes into a host of other factors of things outside of your financial history such as your current salary for example.

Hence, there may well be things that disqualify you from certain financial products despite having a good score on paper. A lender, in particular, will look at all the factors they can get their hands on when approving you for a mortgage for instance.

What is a credit report?

A credit report is actually far more important than a credit score by itself. Not only will it prepare you for approval with loans such as  buy to let mortgages in the property world but a good report opens you up to other benefits like eligibility for insurance and the availability of things like mobile phone contracts.

It is important to understand that when companies look at your report to approve you for some kind of financial product, there is rarely a binary decision that is taking place such as saying yes or no to a mortgage. There are always more complicated details such as using your report to determine the interest rate of a mortgage that is offered or the term in which the mortgage is stretched out for like in a 95 mortgage for instance.

Also, things like offering different credit limits or overdraft limits to those who have different scores are all impacted by different credit reports. So this demonstrates how credit reports affect the financial products not just offered to you but in what terms they are offered to you.

What can affect your credit score?

Credit scores can be affected by a range of factors including:

  • Credit cards opened that you stay within the limit for
  • Registering to vote
  • Opening bank accounts
  • Keeping bank and credit accounts for a long period of time
  • The removal of fraud and tenancy checks
  • Changing property address

It may also be the case that there is a thin credit report which means there isn’t much information there for a credit checker to base your credit score on. This may also result in a poor credit score.

If you are wondering what will be used to check if you are eligible for a mortgage, then you would also need to look at the full credit report that will happen where a landlord looks at other factors too.

There will be some overlap but a credit report will include all of the things that are related to finance such as loans, credit cards, bank accounts and direct debits if you have a mortgage or even mobile phone contracts. Furthermore, you can choose to add in other factors too like the amount you pay for rent.

A landlord looking at a credit score printed out

What can you do to get a good credit score?

Ultimately, credit scores must be looked at over time and there aren’t any tricks or quick fixes for someone who has a history of poor credit.

Therefore, one of the first things you can do is wait until you have had accounts open with certain financial products for a long time and make sure you pay any payments related to them on time. The longer this is the better as this shows stability.

Also, it may be necessary to look at how much money is owed in relation to your earning potential.

Adding to this, things that are unrelated to financial services such as the history of your address and whether you’re signed up as a citizen on the electoral register.

Additionally, whether a lender has conducted a hard credit check in recent history also impacts credit score too. Although this is rarely the case unless you are seen to have conducted a lot of hard credit checks all at once in quick succession. 

This is seen as desperate behaviour from lenders which results in them not trusting a customer who seems like they need credit to take out a loan. Even if that loan is a loan only able to be applied to property such as a mortgage it is looked at negatively because a lender cannot see what type of loan was tried to be taken out.

How to Improve Your Credit Score after it is bad?

While credit scores have to be built up over time as you often cannot see any significant changes in a score without giving it a few months, there are still some fast things you can do straight away to improve a poor score.

For example, some things that may catch people out are having a bank account open they haven’t used for a while and perhaps having them open with other people in a joint partnership.

Additionally, the simplest way to improve a score is to register to vote, set up a small direct debit on a bank account and also pay it off monthly.

Finally, a good look at the history of your finances is looked at if you’ve ever faced bankruptcy, if you’ve had court judgements against you or if you have tried to clear the debt. You can usually look at all this information yourself and try to make these changes to get a good credit score so you don’t have to apply for a mortgage without payslips.

Who calculates credit scores?

When lenders of mortgages gain access to this information, they perform a check called a “hard credit check”.  This can also be done when creating a mortgage capacity report or a mortgage in principle.

You may have heard of the process of conducting a “soft” credit check which is just a less intrusive look into the financial past of a client. In fact, some lenders doing a soft check may say they do a quick reference check but do not look into the credit history of someone at all. 

However, it is important to still be cautious around this because it is common for the application for a mortgage of principle which is often a soft credit check for most lenders to be a hard credit check in some cases.

This is where some people get caught out by thinking all agreements in principle are soft and cannot be seen in a credit report. As a result, this may lead to multiple hard credit checks in a credit report and a credit score may tank as a result.

A landlord applying for a mortgage with a good credit score

To conclude

Overall, it is clear why the topic of credit scores to those who aren’t informed can be extremely confusing. Not only do you need to know about the different types of credit referencing agencies and work with only one. But, you also have to know the difference between this score and a credit report.

If that wasn’t enough, there are also a few traps to avoid when trying to improve a credit score such as avoiding too many hard credit checks in a short period of time and also making sure things that aren’t necessarily related to finances are sorted out in your credit report such as having a registered address.

With all things considered, if looking at credit scores in relation to property, making sure you understand things in detail will help you out quite a bit.

And one thing you may realise is that the more you look into finance the more you understand different ways of making things work. 

For example, check out our article on buying a house with no money which provides some great first steps or our article on self assessment form SA302.

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Donnell Bailey

Property expert

Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.