What is UK Credit Rating? Why It Is Important?

What is UK Credit Rating?

When people need a loan, they approach a bank for the money. A bank makes its money by borrowing money from people who have a surplus, at low interest and lending it to people in need at a higher interest. 

For a bank to function properly, it needs to reduce the risk involved in sanctioning loans. They cannot afford to let people miss payment deadlines and default on loans. Therefore, banks tend to perform a background check, also known as a credit check, before they sanction loans. 

The credit check tells the bank about financial history. This includes: 

  • How many loans you have taken before 
  • If you have made late payments on those loans
  • If you have defaulted on those loans
  • How many credit cards you have
  • If you have missed any credit card payments

The above-mentioned factors are compiled into a rating that tells the bank what your creditworthiness is. This rating is known as your UK credit rating. A UK credit rating varies from 0 to 999. The higher the number, the better your credit rating is.

Once the bank knows your credit rating, it decides whether they wish to hand you a loan or not. It’s not common for banks to reject customers who have a good credit rating. However, if your UK credit rating is poor, you can expect to get either a loan at a high interest rate, or not get one at all.

Who Decides your UK credit rating?

Credit ratings in the UK are compiled by Credit Rating Agencies (CRA). CRAs get your information from past records. The data that CRAs use to make your credit rating includes your payment history, credit usage, credit mix, and other information such as your missed credit payments, foreclosures, and so forth.

Depending on the CRA, there are different types of ratings. For example, Experian’s credit rating varies from 0 to 999, with 0 being the lowest. However, TransUnion’s credit rating ranges from 300 and 850. The same applies to other CRAs as well.

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