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What Credit Score Do I Need For A Loan | Abound
Learn what credit score you need for a loan in the UK - and how open banking can help you to borrow if you have a lower score or ‘thin’ history.
Abound Team
April 18, 2023

What credit score do I need for a loan?

A credit score reflects your borrowing track record and level of risk to lenders, helping them to determine loan terms.

If you apply for a loan, the lender will want to make sure you can repay it in full and on time every month. To work out whether they can trust you to do this, they’ll check your credit score. But what credit score do you need for a loan?

In short, you don’t need a specific credit score to get a loan. In other words, there’s no magic number that will ensure you are approved because different lenders take different approaches. That said, this rating helps lenders to decide if they’ll give you a loan, as well as which interest rate and fees to offer. Broadly speaking, the higher your credit score, the wider your pool of willing lenders - and the easier it’ll be to borrow with better terms.

Below, we’ll explain how credit scores work, what score might increase your chances of getting a loan, and why this number isn’t necessarily the deciding factor when it comes to approvals. Plus, discover tips on how to boost your credit score.

What is a credit score?

A credit score is a rating calculated by Credit Reference Agencies (CRAs) to show how well you’ve managed your debts to date. Your score is based on a report of your financial history, which includes things like your:

  • Personal information;
  • Past home addresses;
  • Existing lines of credit;
  • Outstanding balances;
  • Details of any late payments, defaults, CCJs or bankruptcies;
  • Joint bank accounts, mortgages and credit cards; and
  • Soft and hard credit searches. A hard search is when a lender performs a full check of your credit history while reviewing a loan application. Unlike soft searches, hard searches are recorded on your credit report for future lenders to see.

Essentially, your credit score helps lenders to work out how reliable you’ll be at repaying a loan, and in turn whether they’re happy to lend to you. To get your credit score, they’ll request it from the CRA. In the UK, the three main CRAs are Equifax, Experian and TransUnion.

Almost everyone with a UK bank account will be on the CRAs' databases and have a credit score. Importantly, the three CRAs may hold slightly different amounts of information. It all depends on what information each one has received from the following sources:

  • Creditors like credit card companies, mortgage lenders and banks send regular reports on your current credit status to CRAs to show well you’ve managed your account.
  • Public records can include details on bankruptcies, CCJs and IVAs, as well as other personal information. For example, the electoral roll features your previous addresses.
  • Debt collection agencies can buy overdue debts from service, medical and utility providers and may report the account to a CRA if you do not clear it in time.

Once a CRA has gathered enough information on you, it’ll put together a credit report.

Read on to learn how CRAs calculate your credit score.

How are credit scores calculated?

When calculating your credit score, CRAs consider these key factors:

  • Payment history - this carries the most weight, so it’s important to demonstrate that you've paid off past debts on time and as agreed. Ultimately, the more reliable your payment records, the less risky you’ll seem to lenders.
  • Age and mix of credit - provided you’ve kept on top of payments, the more established and varied your credit history, the better. This gives lenders a broader and longer-term insight into your ability to manage debts.
  • Recent credit - the amount of credit accounts you've recently opened, and number of hard searches it took to get there, will influence your score. Too many can sound alarm bells, as it suggests that you’re in serious need of extra finance.
  • Outstanding balances and available credit - owing money won’t usually harm your score unless you use up a considerable amount of credit, which will make it look like you’re overextended. On the other hand, having a healthy amount of available credit can give your score a boost.

Importantly, every CRA applies the above information to its own unique credit scoring system. Here are the rating scales for Experian, Equifax and TransUnion:

This means that your credit score - and what it means - will differ depending on the CRA. It’s also continuously adjusting as you manage your debts. Essentially, you’ll:

  1. Earn points for positive practices, such as clearing your credit card balance each month; and
  2. Lose points for negative incidents, like late and missed repayments.

Not sure where to keep track of your credit score?

We’ve got you covered in the next section.

How to check your credit score

It’s easy to check your credit score online. You can access your full credit report for free on platforms like Credit Club and ClearScore. Checkmyfile is another great resource, as it gathers data from Equifax, Experian, TransUnion and Crediva. This multi-agency credit report is free for your first 30 days.

We recommend checking your credit report regularly to make sure everything looks accurate. Because even minor mistakes like the wrong address have the power to impact your credit score. If you need to correct an error or update information, you can usually contact the CRA directly.

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

Technically, there’s no minimum credit score needed for a loan. Having said that, a high score shows that you have a proven track record for timely repayments. And that makes it easier to get a loan.

When shopping around for loans, you’ll soon learn that lenders promote a representative Annual Percentage Rate (APR). This metric covers the interest rate and any lender fees, so that you can work out the total cost of borrowing each year.

Usually, a strong credit score means you’ll be able to secure a more affordable APR.

This is because you pose less risk to lenders. As a result, more loan offers will come your way - often with lower interest rates and more favourable fees.

That being said, a low credit score doesn’t always mean you’ll be rejected for a loan or miss out on great deals. While lots of traditional lenders have strict criteria that demand a high credit score, others are more flexible when it comes to this figure.

Cue Open Banking. Nowadays, lenders like Abound use this technology to look beyond your credit score and determine how much you can really afford to borrow.

Keep reading to find out more.

Is a credit score necessary for a loan in 2023?

Yes, but it’s no longer the be all and end all. Your credit score gives a good indication of your past borrowing behaviours, but there’s a lot of key information it leaves out; monthly earnings, salary, savings and employment status to name a few.

And if you’ve never needed to take out a loan before, or only just moved to the UK, you won’t have had the chance to build your credit history. This can be frustrating if your finances are up to scratch, and you’re not someone who would otherwise be considered a high credit risk.

Open Banking fills in the blanks for borrowers in these situations.

With your permission, Open Banking lenders like Abound can view your banking information during the personal loan application process and make credit decisions based on the full financial picture. Think account details, incoming and outgoing transactions, and extra account features like overdraft payments.

All you have to do is give your potential lender the green light (and if you ever want to revoke their access, it’ll only take a few taps within your banking app).

The result? Instead of focusing on a rating provided by a CRA, these lenders get all the  numbers directly from you. With a holistic understanding of your finances, they may be more likely to approve you for a loan - even if you have a lower credit score.

To top it off, these loans often come with a lower interest rate than those offered by traditional lenders. By checking out your bank transactions, Open Banking loan providers can figure out exactly how much you’re able to afford and offer practical terms personalised to you.

Ready to apply? To get an Open Banking loan with Abound, you’ll have to:

  • Be at least 18 years old;
  • Be a UK resident;
  • Have held a UK bank account for at least 6 months (or 3 months if you’ve recently moved to the UK); and
  • Have no unpaid defaults or CCJs.

After that, it all depends on your unique financial situation. What’s most important is that your regular income can cover monthly repayments comfortably, with savings to spare.

Tips for boosting your credit score

No matter the type of loan you’re looking for, it’s always a good idea to have a healthy credit score. There’s no one-size-fits-all strategy when it comes to raising this rating, but certain measures are a smart move for most borrowers. Here are some simple ways to try and strengthen your score:

Stay on top of your repayments

Lenders want to see that you're a sensible borrower who can keep up with regular repayments. It’s as simple as that.

So, the best way to improve your credit score is to pay every bill in full and on time. This gives lenders confidence that you’ll be able to handle future debts effectively, too.

Get on the electoral roll

If you’re not already on the electoral roll, it’s time to take action. This database features the names and addresses of all UK residents who are registered to vote.

Even if you don’t plan to vote on election day, just being on this roll can increase your credit score. This is because CRAs check it to verify your identity. If you’re not listed, they’ll have to request other documents instead, which can slow down your application.

Thankfully, getting on the electoral roll is easy. You can register to vote online in a few minutes. Note that you’ll need to provide personal information like your full name, date of birth, home address and electoral number.

Keep your debt-to-income ratio low

Your debt-to-income (DTI) ratio is the percentage of your monthly earnings that goes towards paying off loans and lines of credit. For instance, if your gross monthly income is £4,000 and you use £1,000 to repay debts each month, your DTI is 25%.

As a general rule of thumb, it’s best to maintain a DTI of about 36%. While it’s fine to go above this percentage every now and again, keeping it low will show lenders that you’re not overly reliant on borrowing.

Don’t apply for unnecessary credit

Too many applications in a short space of time is a red flag to lenders. That’s because a footprint is left on your report every time a lender completes a hard credit search. Lots of footprints in a tight timeframe could raise suspicion and cause your credit score to dip.

The bottom line? If you’re planning to apply for a personal loan in the next few months, it’s best to avoid applying for additional lines of credit in the meantime.

Consider debt consolidation

If you’re juggling multiple repayments for things like credit cards, personal loans and overdrafts, debt consolidation might be a better call. In short, this is when you take out a new loan with a lower interest rate to pay off existing debts.

A debt consolidation loan can help you to streamline several outstanding balances into a single fixed monthly payment. Under the right circumstances, this approach could save you time, stress and money on interest.

Find out if debt consolidation is a good idea for your financial situation.

Cut financial ties with former partners

If you’ve held a joint bank account, mortgage or credit card with a past partner, this information will show up in your credit report as a 'financial associate'.

Your credit report will show the credit details of any financial associates, so it's important that they consent to that information being provided. This will normally be set out in the lender's Privacy Notice and in the Credit Reference Agency Information Notices, which are shown to you during your application journey

Unfortunately, that means the other person’s financial habits can impact your credit score - even if you’ve called it quits on the relationship. Lenders might still consider both of your credit histories when reviewing a loan application that you’ve made independently.

The good news is that you can officially unlink your finances by asking the CRA for a notice of disassociation. This request will remove the specified financial associate from your report, so that their credit score doesn’t affect your ability to get a loan moving forward.

Learn more about how to build your credit score.

Get started with an Open Banking loan

At Abound, we understand that your credit score is only one piece of the puzzle. That’s why we look at the full financial picture when reviewing your loan application, factoring in key information like earnings, savings and spending habits.

For you, that means greater access to fair and flexible loan terms.

Need an unsecured personal loan between £1,000 and £10,000?

Get your free quote with our online loan calculator today.