Grate cheddar fresh from a block — do not use pre-shredded. Let grated cheddar and cubed cream cheese sit at room temperature for 10 minutes before starting.
Melt butter in a medium saucepan over medium-low heat. Add cream cheese and stir until fully melted and smooth, about 2 minutes. Gradually whisk in milk and heavy cream. Add garlic powder, onion powder, smoked paprika, cayenne, and Worcestershire sauce. Stir well and bring to a gentle simmer — do not boil.
Reduce heat to low. Add grated cheddar in 2–3 batches, stirring well between each addition until fully melted before adding the next. Stir Dijon mustard in with the first batch. Keep heat low throughout — high heat causes the sauce to go grainy.
Taste and season with salt and white pepper. Add more Worcestershire if flat. Add a splash of warm milk if too thick. Simmer on lowest heat 1–2 minutes if too thin. Sauce should coat the back of a spoon and flow slowly.
Pour into a serving bowl or keep warm in a small slow cooker on the warm setting. Dust the top with smoked paprika. Serve with pretzels, chips, and vegetables alongside.
