What Affects Your Credit Score?

By 3rd October 2019Financial Help

What Affects Your Credit Score?

Your credit score is used by lenders to decide whether or not to lend you money. There is no standard credit score; there are three main companies that offer different scores; Call Credit, Experian, and Equifax. All three offer a free credit check – so don’t pay if you don’t have to!

  • Don’t apply for credit too often in a short time
  • Try and stay in the same address for a long time
  • Ensure that you’re on the electoral roll
  • Have an old credit account
  • Make some kind of repayment – even if it’s not enough
  • Use less than 50% of available credit
  • Unless you wish to take out further credit, your rating is not something to worry too much about

Applying For Credit

Each time someone makes a ‘hard search’ on your credit report, a mark will be left on it. Now, the odd search every now and then won’t really make a difference, however, if you are applying for a lot of credit (especially if you are being turned down), it can have a strong negative effect on your credit score.
If you apply for a credit card or loan, the search will affect your credit score, however if you stick within all agreed agreements, your credit score will rise quite quickly.

When Debt Assist makes a credit check on you, we use a ‘soft search’, which doesn’t affect your score.

Address Stability

Lenders like people who are (or appear to be) reliable and stable, as in their minds, this means you are more likely to repay your debts. One of the ways they establish this stability is looking at how long you have lived at your address. Living in the same place for a long time is better for your credit score than regularly changing address.

For similar reasons, being on the electoral roll also has a positive effect on your credit score as they believe that it shows stability, as well as proof that you are who you say you are.

Account Age

Having a credit account that you have help for several years is a positive for your credit score. It’s not the most sophisticated way of checking your eligibility for a loan, but if a lender sees that someone else has lent to you over a long period and you’re repaying it, they’re much more likely to lend to you than if all of your credit was taken out in a short period of time, as this could be a sign that you are struggling financially – therefore lowering your credit score.

Not Meeting Payments

This is the obvious one, if you are not repaying any current loans then this will be marked on your credit report and is extremely likely to have a negative effect on your score.

If you have missed several payments, then the lender may place your account into ‘default’. A default can reduce your credit score massively and will stay on your report for six years. As companies have different criteria for placing people into default, it’s not worth risking any more than one payment if you are bothered about having a good credit rating.

On the plus side, if you make payments towards your debts, even if they have defaulted, it shows prospective lenders that you are at least trying to repay your debts, and they may take this into account.

Credit Limit

How you use the credit available to you is also looked at by potential lenders. Using too much of your available credit, or too much from a single source, could damage your credit score. According to Equifax, you want to keep any lending under 30% of your available credit limit for each lender. If you use 50% – 75% of available credit this will be flagged as a warning to lenders. 75% or more will be considered a ‘red flag’ and can have a much larger negative effect on your credit score.

However, having a high credit limit shows lenders than someone else has trusted you with a large amount, and will have a positive effect on your score.

CCJs, IVAs and Bankruptcy

Having a CCJ, IVA or bankruptcy against your name is a big negative on your credit report, as it shows that you haven’t stuck to the agreed terms of a previous credit arrangement. Entering into one of these situations means that your credit rating will be negatively impacted, however, in order to be in the situation in the first place means that your rating is already likely to have been affected.

Make sure that you stick to any terms you have agreed to when entering into a CCJ, IVA or bankruptcy, as this can have more serious consequences.

Once you have cleared your CCJ, IVA or bankruptcy, you can slowly rebuild your credit report.