According to recent reports, 69% of UK residents aren’t aware of their Credit scores.

Taking out a Loan can offer a range of advantages. For example, it can help –

• Improve your credit score if handled well.
• Avoid using up savings in case of medical emergencies.
• Speed up the process of accessing funds quickly.

It is important to know your credit score before applying for any debt like short term loans, personal loans, debt consolidation loan, etc., as different lenders have different requirements.

Understanding what credit score you need for a loan can help make the process of getting loans more efficient. Sure, the higher your credit score is, the better, but what’s the cut-off point for getting approved?

The purpose of this blog post is to give you an insight into what credit scores are needed to access different loans in the UK in 2023, so that you can make informed decisions about whether you should get a loan.

What credit score do I need for a loan in the UK?

Different credit agencies prefer different minimum credit scores when lending a loan. Typically, a credit score of 750 and above is considered as a good credit score and the most ideal credit score preferred by most lenders.

A score this high determines the borrower’s creditworthiness, thus improving the chances of approving the loan application.

Lenders use the three major UK credit bureaus to assess an individual’s creditworthiness: TransUnion, Equifax, and Experian.

1. TransUnion

TransUnion, one of the UK’s leading credit reporting agencies, that gives credit scores ranging from 0 to 710. Typically, a credit score above 628 is classified as excellent, which increases your chances of loan approvals at competitive rates.

2. Equifax

Equifax is a credit reporting agency that provides accurate credit scores in the UK. Equifax rates credit scores on a scale of 0 to 1000, with scores higher than 671 indicating a good score for better creditworthiness.

Lenders may prefer credit scores above 531 for loan approvals. However, they also consider other factors, such as your debt-to-income ratio, employment status, and loan tenure.

3. Experian

Experian, the largest credit reporting agency in the UK, gives credit scores ranging from 0 to 999. Usually, an 881-960 credit score for a loan is considered good. Similarly, a credit score below 720 is regarded as fair or poor credit score, which may limit your borrowing capacity.

However, Experian advises that credit scores are just one aspect of loan approvals, and lenders may use different criteria such as income level, employment status, and debt-to-income ratio when evaluating and approving loan applications.

What type of loan can I get for my credit score?

Once you learn how to check your credit score, the following table will help you determine all loan types available based on your credit score.

The average credit score needed for a loan in the UK

The average credit score needed for a loan in the UK will depend on the lender and the type of loan.

Generally, lenders use a credit scoring system that calculates your credit score by calculating your

• Payment history
• Outstanding debts
• Length of credit history, etc.

The higher the score, the better your chances are of getting approved for a loan. In general, lenders consider scores between 650 and 750 as good and can approve loans for mortgage or personal use with reasonable interest rates.

Those with scores lower than 550 may need help getting approved for loans, but may still qualify for secured loans against asset collateral. Scores below 500 are considered bad by lenders and can make it difficult to access any form of loan or financing.

Factors behind bad credit score

The main factors behind a bad credit score are typically linked to borrowing or spending habits. When someone frequently establishes new accounts, their credit history may appear fragmented and challenging to track. Additionally, when a loan applicant frequently reaches their credit limit, lenders may perceive that applicant as unable to take on more debt.

Applying for too much credit can also harm your score, signalling that you’re trying to take on more debt than you can handle. Similarly, lenders will view missed payments as a sign that you cannot manage your existing debt and are having trouble repaying it.

Similarly, borrowing more than you can afford affects your credit score. Lenders look at this as an irresponsible financial decision. Additionally, lenders may be wary of accepting application from individuals with short or no credit history as lenders cannot assess the applicant’s past payment records.

What activities do not affect my credit score?

Activities that do not affect your credit score include making purchases with cash, renting a home or apartment, and taking out student loans. These activities are not reported to credit bureaus and will not be included in your credit score calculations. Additionally, having a good payment history with utility companies, such as electricity and water, is beneficial for maintaining financial health but does not impact the credit score calculation.

Credit inquiries made by creditors when you apply for short term loans or credit cards are also noted on your credit report. Credit inquiries you make also do not affect your score, as they are done solely to monitor your credit information. Finally, if you pay on time and maintain a low balance on your account, simply having an account with a creditor will not affect your credit score.

Strategies for improving credit scores

The following strategies explain how to improve your credit score in 2023 for the best loan rates and a healthy financial future.

1. Make all payments on time and in full: To maintain your credit score, prioritise paying bills on time. Doing this consistently will gradually increase your credit score.

2. Lower credit utilisation: Your credit utilisation ratio calculates how much of your available credit you use, so having a high percentage can lower your score. To improve your credit score, pay off existing debts or transfer balances from multiple cards to one with a lower interest rate to keep the debt you owe relatively low.

3. Dispute errors and inaccuracies: Errors or inaccurate information on your credit report can negatively affect your score, so it’s essential to review it periodically for any discrepancies and contact the reporting bureau if needed to dispute them.

4. Use Experian Boost: This feature offered by Experian helps users boost their scores by taking into account positive financial behaviour that typically may not be reported by banks and other lenders, including cell phone bills and utility payments. This is regarded as the best way to improve credit scores rapidly.

Bottom line

A credit score is an important factor for the approval of loan applications. Lenders use it to assess a potential borrower’s financial stability, creditworthiness, and overall risk. If you have a poor credit history, improving your score before submitting a loan application is essential. We’ve discussed the average credit score deadline and the factors that can negatively affect your credit score.

Credit scores alone do not accurately reflect the applicant’s full financial situation, which is why Lending Stream considers multiple factors when approving loans. All you have to do is apply for your desired amount and await recommendations based on your situation.

FAQs

Disclaimer: The information given above is provided for reference only. This is not financial advice.