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What affects your credit score?

Unlock better loans, mortgages, and credit cards by understanding your credit score and pave the way to financial empowerment.

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What affects your credit score
There are several ways to improve your credit score. Checking your credit file is a great way to start.

If you want to get the best loans and credit cards, you need to convince lenders that you’re reliable. The best way to do this is to have a strong credit file, and the easiest way to tell whether that’s the case is by monitoring your credit score.

Given the cost-of-living crisis, companies can hardly be blamed for being picky about who they lend to and scrutinising the credit history of anyone who approaches them for a loan, credit card or other financial product. But what affects your chances of success?

What is a credit score?

Your credit score is a ranking that’s based on your history of using credit and managing your finances. It offers insight into how appealing you appear to potential creditors.

The financial providers themselves focus on the nitty-gritty of your credit file, which details your history of money and debt management. This helps them decide whether or not you’ll miss payments. They use their own formulas to arrive at their own secret credit score. The one you see on your credit file is generated by the company providing your credit report and is just for guidance.

Which companies look at your credit file?

The range of companies that would base their decision to accept you as a client is wider than you may think. It includes credit card companies, mortgage lenders, estate agents and landlords, utility firms and mobile phone providers. In other words, any provider that could lose out if you proved to be unable to pay them what you owe on time. 

Who provides credit scores?

Anyone with a history of applying for credit will have a credit report in their name, which includes a credit score. In the UK, three credit reference agencies are licenced to produce these reports: 

Each one collects financial information about you from financial providers, public records and other companies. Among the information they gather is:

  • Current and past bank accounts

  • Credit cards and loans

  • Any late or missed payments 

  • County Court Judgments (CCJs), Individual Voluntary Agreements (IVAs) and bankruptcies

  • How close you get to your credit limits

  • How many credit applications you have made and their outcomes

  • Whether you’re on the electoral roll

Each credit reference agency applies different weightings to the information they collect. For example, TransUnion’s credit score is out of 710, Experian’s is out of 999 and Equifax’s is out of 1,000. This means your ratings will invariably differ across them, which is why you should check them all.

What factors affect your credit score?

Credit agencies focus on all aspects of your financial history that they have at their disposal, such as your bank account – for your overdraft use – and credit card providers.

The patterns of behaviour they pay special attention to include:

When your credit history began

  • A short history doesn’t reveal much about your relationship with credit, so the longer you’ve had access to credit the better, as this gives the credit reference agencies more information to base their analysis on

How you have handled credit over this period

  • Making payments on time indicates you’re good at managing money. Late or missed payments suggest you may not be reliable

  • Evidence that you’ve kept levels of debt low over a long period is a positive sign that you are good with money

The range of credit products you have used

  • Using a range of financial products that provide access to credit is a plus, provided you’ve used them efficiently 

  • Closing unused credit cards is recommended as it removes the temptation to rely on them when money’s tight. Having unused cards is also a fraud risk

How many credit applications you’ve made

  • Making multiple credit applications within a short period suggests you’ve struggled with money and could be a risk for lenders

Any financial court actions you’ve had

  • Having a CCJ awarded against you, entering into an IVA or being declared bankrupt can affect your ability to get credit. These actions will weigh on your credit score until they’re removed from your credit report, which happens after six years

Whether you’re on the electoral roll

  • Being on the electoral roll makes it easier for companies to confirm your identity and address, and thus to ensure applications they receive aren’t fraudulent

Who you’re financially associated with

  • Being linked to other people via joint accounts, mortgages and other financial products can be problematic if they have a poor credit score 

What doesn’t affect your credit score?

While several factors can affect your credit score for good or ill, some actions won’t have any effect at all. These include:

  • Changes in income

  • Spending your own money

  • Becoming unemployed or retiring – although your ability to borrow may be affected

  • Marital status

  • Your age

  • Your gender

  • Your ethnicity, race or religion

  • Where you live

  • Who you live with – provided you’re not financially linked

  • Student loans

  • Checking your credit report and soft credit checks made by companies 

Why you should check your credit report

Checking your credit score is actively encouraged by financial providers because it’s in everyone’s interest to do all you can to boost your score. 

There are several positive actions you can take to improve your credit score, such as closing unused credit cards and getting on the electoral register. 

Likewise, you should also check your credit report for errors and for evidence of fraud, such as credit cards showing up that you’ve never taken out. Report any errors to the relevant credit reference agency, and suspected fraud to the relevant lender and Action Fraud

How do you check your credit score?

Checking your credit score is easy – just register with the three credit reference agencies and select the free statutory credit report. You can opt for the free 30-day trial of the credit reference agencies’ more comprehensive reports, but you need to remember to cancel before the free period ends. Otherwise, you’ll be charged up to £14.99 a month.

To get your free report, you need to provide the following information in writing or over the phone:

  • Your full name

  • Any other names you’ve used or been known by over the past six years

  • Your current postal address

  • Any other addresses you’ve lived at in the last six years

  • Your date of birth

You may also be asked for proof of your identity and address, usually in the form of a utility bill or bank statement.

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