What affects your credit score as a UK consumer?

A good credit score

Having a good understanding of your financial history can be incredibly useful when it comes to understanding what affects your credit score and what might have a negative impact on your credit score.

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Lenders of loans and mortgages use your credit score to determine how likely you are to repay debt in order to decide whether you’ll be eligible for a loan.

Loan providers will likely carry out credit checks on your credit account in the form of a soft credit enquiry (an initial look into your credit file and something that doesn’t affect your credit score) or a hard credit check (a complete search on your credit report which usually impacts your credit score).

There are so many things to wrap your head around with regards to the key factors that affect your credit score and why your credit score has dropped and in the guide below, you’ll hopefully learn everything you need to know, including how to build your credit score.

What things can hurt your credit scores?

Your credit score may have dropped for a number of reasons; some may be beyond your control and some may be as a result of things you’ve done that have had an impact on your credit score.

Some of the things that can hurt your credit score include the following:

  • Missed payments on your credit card or loan
  • Having a high credit utilisation ratio
  • Opening numerous lines of credit in a short space of time
  • Defaulting on accounts - including declaring bankruptcy, foreclosure or repossession
  • Refinancing your home or car loan
  • Not having a credit card at all
  • Maxing out your credit card
  • Hard inquiries on your account as performed by lenders when you apply for credit (avoid too many of these)
  • Debt consolidation
  • Cancelling a credit card

As you can see, there are so many factors that can affect your credit score, so while you can’t control every single one of them, it’s a good idea to try and take care of the things you can control in order to protect your credit score

Types of accounts that affect credit score

As well as some of the above factors affecting your credit score, there are also some specific types of accounts that can have an impact on your credit score.

Installment credit

Installment credit usually consists of loans such as student loans, personal loans and mortgages.

It usually involves a loan where you borrow a fixed amount of money and enter into an agreement to pay back the money every month until the overall balance is paid off.

Learn more: 7 important things to know before getting a personal loan

Revolving credit

If you have revolving credit, this means that you usually have a credit limit in place and you must make at least the minimum required monthly repayment according to how much credit you use.

Revolving credit is typically associated with credit cards and they don’t usually have a fixed term in place and can often fluctuate.

Factors used to calculate credit scores

Of course, the factors that affect your credit score will differ slightly depending on the exact criteria that the scoring model uses to determine your score, but there are a few factors that are usually typical across every credit bureau.

Your payment history

This is potentially one of the most important factors in calculating your credit score and just one missed payment can be significantly detrimental, so it’s important to try and make every single payment on time.

When it comes to borrowing money, lenders will want to ensure that you’ll be able to pay back your debts on time, so you need to provide proof of this by making your regular payments on time.

The length of your credit history

It goes without saying that the longer your credit history is, the better your credit score will be. This is because you’ll usually have had years to prove your ability to pay back any loans or make repayments on any debts you have, so the longer history you have of doing this, the higher your score will likely be.

Accounts owed

Your credit utilisation ratio is the amount of your credit limit you’re using divided by the total amount of credit you have (credit limit) and your credit usage is another factor that’s used to determine your credit score.

Credit mix

Your credit mix is essentially the amount of credit accounts you have in your portfolio. This could include things like mortgages, credit cards, car loans, student loans and more. 

Many credit lenders will want to know how diverse your credit portfolio is and how well you manage your credit.

Recently opened lines of credit

If you’ve opened numerous new lines of credit within a relatively short period of time, this can often have a negative impact on your credit score as the more accounts you’re seen to open in a short amount of time, the more “at-risk” you’re deemed to be by the lender.

Ways to improve your credit score

While some of the things that affect your credit score might be out of your control, there are several things you can do in order to boost your credit score. It’s important to keep a good credit score where possible so that you can improve your chances of being accepted for things like loans and mortgages.

  • Ensure that you pay all your bills on time.
  • Try to reduce the amount of new lines of credit that you open in a short amount of time.
  • Ensure that you fill out credit request forms as accurately as possible and check for any mistakes on your file such as misspelt names or addresses - even the slightest mistake could affect your score.
  • Reduce your credit card debt and any outstanding loans as much as possible.
  • Register on the electoral roll.
  • Keep your credit utilisation ratio low.
  • Check for any potential fraudulent activity on your credit report.
  • Avoid moving house a lot (of course, this isn’t something that’s always possible, but it’s still worth bearing in mind).

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