Credit Scores - When Computer Says ‘No’ 

A credit score, also known as a credit rating, is a number which estimates the likelihood of you repaying money you’ve borrowed.  

Why Does It Matter? 

Banks and credit card companies want to know the level of risk they take when lending to you. This can affect how much interest they charge and whether you’ll be approved for the loan.

The riskier you look to a lender the more money they’ll want to charge in interest. This doesn’t mean that companies won’t lend to you, but it may be more expensive.  

And the safer you look, the less interest you are generally charged. But this doesn’t always mean that companies will lend to you.  

What is a good score?

The credit bureaus, which calculate your score, look at your credit history to predict your future financial behaviour. 

In the UK there are three main credit reporting agencies. A good credit with: 

• TransUnion is scoring 4 out of 5 
• Equifax is scoring over 420 out of 700 
• Experian is scoring over 880 out of 999 

There are no guarantees that just because you have a good credit score you will be approved for credit or offered the lowest interest rates.

Did You Know! You have the legal right to access your credit report for free!  

Building your credit score 

Your credit score is built from five key pieces of information:  

• Payment history – This is the most important factor. Lenders want to know that you pay on time, every time. 
• Level of debt – As a general rule you should keep your total debt lower than the overall credit available to you. If you get too close to your credit limit creditors worry that you may not be able to make repayments. 
• Credit age – The longer you have been managing your credit responsibly the better your credit score will be.  
• Mix of credit – You should aim to have a mix of different credit types such as mortgages, credit cards, and car loans. This helps prove you have experience handling a variety of account types. 
• Recent credit – Creditors will look closely at the accounts you have opened recently and whether you have been making inquiries into credit. They want to understand who gave you credit and what type. 

By focusing on these five factors can ensure that you build a good credit score. 

Maintaining your credit score 

Once you have managed to build your credit score you should follow these seven tips to maintain it. 

1. Understand what goes into a good credit score  
2. Pay your bills on time  
3. Keep your credit card balances low 
4. Don’t close old credit cards 
5. Manage your debt 
6. Limit your applications for new credit
7. Watch your credit report 

How to improve your credit score 

Your credit history is built up slowly over time. If you do miss payments or default, then these negative marks remain on your credit file for 6 years before they are then deleted. 

There are, however, some simple things you can do now to improve your score. First and foremost, you should get a copy of your credit report and analyse the information it contains.  

• Register on the electoral roll – It is easier to get credit when you are registered to vote.
• Check for mistakes on your file – Even small mistakes can impact your score. Make sure to report any incorrect information. 
• Pay your bills on time – This is a great way to prove that you can manage your finances. 
• Check if you are linked to another person – Having someone linked to you through a joint account can affect your personal rating if they have a poor score. 
• Check for fraudulent activity – If someone has applied for credit using your name without your knowledge, contact the credit reference agency immediately. 
• County Court Judgements – These CCJs can have a serious impact on your credit score. If you get into a financial problem, make sure to get debt advice.
  • If you fail to repay a debt, you might receive a County Court Judgement which will order you to repay your debt either in installments or in full. Read more about County Court Judgements.  Unless you pay off the entire debt mentioned in your CCJ within 30 days of receiving the judgement, it will be put on your credit record and remain there for 6 years. 
• High levels of existing debt – aim to eliminate outstanding debt before applying for new credit.  
• Moving home a lot – Lender’s love stability; they are more comfortable when they see evidence that you have lived at one address for a considerable period.