The chances are you have come across the term “credit score” on numerous occasions. It is one of those subjects we all know about. But do we know what it means? How might a credit score impact your life? What is the average credit score in the UK?
To understand the importance of your credit score, we need to look at who calculates your credit score and how they do it.
What is a credit score?
If you Google the term "credit score", you will likely see it described as reflecting an individual’s creditworthiness. However, there is an awful lot more to your credit score than just creditworthiness, as we will cover. Perhaps the best way to describe this is a rating of your financial management skills. The higher your credit score, the better your financial management skills and financial situation are perceived to be. As such, you may enjoy better access to credit and finance as well as more attractive interest rates and offers. The reverse is true if your credit score is on the low side.
How is your credit score calculated?
There are several credit rating agencies, each with slightly different criteria and weightings when calculating your credit score. All of the information used to calculate your credit score is in your credit file, which contains information such as:
- Credit history
- Amounts outstanding
- Payment history
- New credit applications
As you will see from the image below, taken from the Experian website, each of these factors is given a particular weighting when calculating your credit score. As you would expect, payment history is the most meaningful measure. In essence, this is a reflection of your ability/trustworthiness to keep up with your repayments. Then we have amounts owed, credit history, new credit and credit mix – all taken into account when calculating your score.
As new information can be added to your credit file at any time and be used to calculate your credit score, credit rating agencies will only calculate your current score when there is an enquiry. This enquiry could be from a third party business or individuals making use of credit score tracking services. The information in your credit file will generally remain "live" for seven years, after which it will not impact your credit score. Consequently, those who have complicated financial histories can, in due course, improve their credit rating.
Who are the major credit rating agencies in the UK?
There are three leading credit rating agencies in the UK:
There is also a fourth company called Crediva which specialises in "alternative credit scoring models", which they believe improves traditional credit risk analysis. The three leading credit rating agencies manage credit files for individuals and businesses. As we touched on above, the information in these files is then used to calculate credit scores.
As you will see online, hundreds if not thousands of companies offer credit score services. To calculate their version of your credit score, they will need access to the credit file managed by the above companies. So, while the credit score services deliver your actual credit score, the credit files are the vital element of this process.
What is the average credit score across the UK?
The three leading credit rating agencies have slightly different formulas and somewhat different ranges. For example, the average credit scores and ranges in the UK for the three top agencies are as follows:
- Equifax 383 (0 to 700)
- Experian 759 (0 to 999)
- TransUnion 610 (0 to 710)
When you log into any credit rating agencies’ services, they tend to highlight your credit score in graphical format. The lower the dial, the lower the score, and the less flexibility you’re likely to have around credit options. For example, if your rating is low, you may still have access to 10 credit cards, but they will likely charge high interest rates. These services also allow you to see the range of different scores for each credit score service. As these services record similar information in your credit file, they should broadly reflect the same scenario, just using different scales.
Average credit scores by location and age
To give you an idea of average credit scores across the UK, we have looked at the information for the top five populated cities:
- City of London
Average credit score by location
The following table denotes the average credit score in each of the five major cities. Each score is calculated out of a maximum of 999.
|City||Average Credit Score|
|City of London||887|
Average credit score by age
If we now dig a little deeper, using different age bands, the range of credit scores starts to expand and become a little more interesting. The Experian website again provides the following information to compare like-for-like with the above table.
|18 – 20||923||780||788||771||759|
21 – 25
|26 – 30||875||741||761||727||754|
|31 – 35||910||739||755||719||749|
|36 – 40||902||744||755||717||747|
|41 – 45||872||756||763||726||745|
|46 – 50||841||762||767||738||746|
|51 – 55||865||775||781||763||749|
As you can see from the above information, there is one standout trend. Credit scores tend to be relatively high for those aged 18 to 20, perhaps because they have limited debt in the early days. The average credit score then dips in the following age groups before rising again for over 50s. It may be that 50s have fully repaid their mortgages, which can obviously reduce financial pressure, hence their relatively high credit rating.
What is a good credit score?
The Experian credit score map is a handy means of comparing and contrasting your credit score against your region and age group. To put this in context, you must compare apples with apples instead of apples and pears. For example, the employment opportunities, cost of living and additional expenses are very different in London compared to Newcastle.
In theory, income and expenditure should be relative across different regions of the UK, but this is not always the case. So, compare your credit score with those of the same age group in your area and then compare this to the average UK score. Doing so will give you an idea of whether you are below average, around average, or above average.
Does your credit score really matter?
You’ll no doubt see differences of opinion regarding credit scores and how much they matter. However, the fact remains that information in your credit file and your credit score is the only way a lender can understand your financial management skills. Contrary to popular belief, there is no "banned list" of individuals who won’t have access to any credit. Whether a credit card company, lender or even mobile telephone company, each third party will obtain your current credit score and make a decision based on their criteria.
As we touched on above, the information in your credit file covers the previous rolling seven-year period – not six years, as some people believe. Consequently, you may have had difficulties eight years ago, which would no longer impact your credit score. Indeed, as your historical financial information approaches the seven-year tipping point, it will become less influential. Thus, while people may argue about the details of your credit score and its importance, it does matter.
Do you need to monitor your credit file entries?
Unfortunately, a rogue entry on your credit file could impact your credit score and restrict credit services available to you. Consequently, you must monitor your credit file entries regularly. There may be misunderstandings, simple errors, or the information may not be accurate. If you see any errors, you must raise a dispute with the relevant parties as soon as possible.
If your dispute is upheld, the information will be removed from your credit file immediately, and future calculations of your credit score will reflect this. Therefore, it is dangerous to assume that all information in your credit file is accurate. Keep checking!
How can you improve your credit score?
Thankfully, there are ways and means to improve your credit score, which should hopefully open up additional credit lines in the future. Some of the simple ways to improve your score include:
- Pay your bills on time
- Retain old credit cards to extend your credit history
- Build a credit history by using different services, but remain in control
- Try not to use more than 25% of your available credit – above this level will negatively impact your credit score
- Limit your number of credit applications
To expand on the final point, a lender will conduct a credit check each time you apply for credit. These show on your credit file and can affect your score. If you repeatedly apply for credit over a relatively short period, this could set alarm bells ringing for future lenders.
It is essential to go back to the basics of your credit file and your credit score. These reflect, among other things, your financial management skills. So even though you may retain an old credit card to extend your credit history, this does not mean that you have to overspend.
How does your credit score compare against the average?
The above information will give you an idea of the average UK credit score and variations for different regions and age groups. Of course, credit scores are not static figures and vary depending on your credit history, payment history and other elements detailed above. However, regular checking of your credit score may allow you to improve ahead of, for example, a mortgage application in a couple of years.
Your credit score will ultimately decide whether a mortgage company will extend credit and impact the headline interest rate available. So treat your credit score with respect!