27 July 2016

What affects your credit score?

A good salary or borrowing history doesn’t always mean a good credit score, as credit agencies take hundreds of different factors into account when calculating your rating.

But there are a few surprising things, like shopping around for a deal, that can actually downgrade your rating.

Seven things that can affect your credit score

To improve your chances of a successful credit application, you’ll want your credit history to show a good track record of paying on time and staying within your credit limit.

But what else can affect your score?

1. Registering to vote
Electoral roll information is often used in credit scores, lenders use it to verify your name and address as a precaution against fraud. Not registering to vote, being registered to vote at an old address or adding the wrong details on the electoral register could all affect your credit score. According to Experian, not registering can reduce your score by 50 points, which could be the difference between your application being accepted or refused.

2. Keeping up with your payments
Make sure that you keep up with all your credit payments as a missed or late credit payment stays on your record for at least 3 years and will impact your credit score.

Paying off your loans early might seem like a good way to improve your credit score and it is, as it will reduce the amount of outstanding debt that you have. But making your expected monthly payments on time throughout the life of the loan may actually be a better strategy for improving and building your credit score, as it shows you’re able to keep to your financial commitments.

Mobile phone contracts are also on your credit file, so it’s important to make sure you keep up with these regular payments too.

3. Utility bills
More than half of the big six energy providers are now sharing data about their customers with credit agencies, according to James Jones, Head of Consumer Affairs at Experian. This gives you the opportunity to establish that all important track record of paying on time. Missing one payment may not specifically alter your overall credit score, but it could still go against you when applying for credit in the future. If you do get into difficulties with a provider, it’s a good idea to check whether it’s been recorded on your credit history as you may be able to register a dispute.

4. Spacing out applications
It can be tempting to switch all your lenders at once, but applying for too many credit products in a short space of time can be viewed as a sign of financial stress and multiple enquiries will appear on your credit report. Lenders could see this as a risk and may decide not to lend to you on that basis, especially if any of your previous credit applications were declined.

Try to leave at least a few months between applications and avoid applying for more than one credit product at a time.

According to Jones, a new account can cause you to lose some points on your credit score for a couple of months, but after six months or more it should start to have a positive impact.

5. Your partner’s finances
Applying for a financial product with a partner will create a link between your financial histories, which means that your other half’s rating could influence your future lending applications.

Applying for a joint loan can sometimes increase your chances of getting credit and might be the right thing for you. However, you should definitely avoid applying together if one of you has a poor credit rating.

Jones advises that couples moving in together should go through their credit ratings to decide whether it's a good idea to join them up.

If your relationship goes wrong, it’s easy to contact each of the three credit reference agencies: Experian, Equifax (PDF) and Callcredit, and ask for any links to be broken.

6. Keep regular credit card borrowing below 25%
You need to use credit to build up a good credit score, but lenders will want to check that you’re not too reliant on it. If you're not planning to pay the full amount each month, aim to keep your regular borrowing across all of your credit cards below 25% of the total limit. This could give a more positive impact on your score.

According to Jones, the lower the percentage, the more points you’re likely to add to your score.

7. Court judgements
A County Court Judgment (CCJ) is a type of court order that may be registered against you in England and Wales if you fail to repay money which you owe. Court judgements for non–payment of debts and bankruptcies will seriously affect your credit score and will stay on your record for up to six years.

Three surprising things that won’t

1. Your income
A disposable income is how much money you have left each month once you have paid your essential bills, which is then available for you to spend or save. According to Jones, 22% of those surveyed by Experian believe a high income means a high credit score, but as long as you have some disposable income, your salary is generally not a factor. Lenders are more interested in how you manage your borrowing.

2. Getting a quote
Some providers, like Nationwide, support your ability to shop around and do some research before committing you to making a full application, with a no-obligation 'soft' quote feature. These 'soft' quotes are still visible on your credit report, but only by you and the provider you’ve done it with and they don't affect your rating like a 'hard' check might. You can also use comparison sites like Money Supermarket and Money Saving Expert to do some research and make use of their ‘SmartSearch’ or ‘Eligibility Calculator’ functionality. They allow you to enter a few personal details to get an indication of how likely you may be to be accepted for a personal loan or credit card. Remember though, not all providers are on comparison sites and that these tools won’t necessarily show the APR that you may get offered for that product.

Credit card providers also offer what is known as an 'eligibility check'. An 'eligibility check' provides a view on likelihood of acceptance, but not an individual quote on credit limit or APR a customer would receive if accepted. These checks are still visible on your credit report by you and the provider you’ve done the check with, but don't affect your rating like a 'hard' check might.

3. Past slip-ups
Credit reports usually consider the past six years, so if you have made a mistake in the past it shouldn’t affect your rating forever.

You can find out your credit rating at credit reference agencies like Experian, Equifax or get it for free, for life using Noddle from Callcredit.

Looking for more information?

Find out more about our credit cards and personal loans.

Read our article What is a credit score?

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