Mindful Money
Feb 14, 20201 min read

What affects your credit score?

Carl Hazeley portrait

by Carl Hazeley

Your credit score is the number that banks and other lenders look at to decide if you’re a “safe” borrower – i.e. one who’ll repay debt on time. It’s assembled by credit bureaus like TransUnion, Equifax, and Experian, which then pass it directly onto lenders. In the UK, it’ll come as part of a credit report. That’s a file of your financial history, the people and institutions you’re linked to, and court records. It also provides another score – known as a gauge score – which measures how people of a similar profile to you manage their credit.

Each British lender feeds your financial data into their own particular algorithm to generate a unique score and decide if you’re safe to lend to. Because each lender calculates this differently, it’s difficult to say exactly what goes into their scoring – but we know what might play a part.

The most important factor is probably your payment history: whether you’ve previously paid your debts on time. Next up is your debt burden: both the amount of debt you have outstanding and how big a proportion of the credit available to you that debt is. Also considered are the length of your credit history (the longer your accounts have been open for, the better); the types of credit used (if you’ve shown you can manage different types of credit, you look more responsible); and your past credit applications.

That means there are some things that might be dragging your score down…

Borrowing too much. Lenders can see the total amount of credit available to you, and how much of it you’re using. The less you use, the better you look – it shows self-restraint. A good rule of thumb is to use less than 30% of your available credit.

Instability. Lenders love a stable life. If you’ve moved house a bunch of times, or if you’re constantly opening and closing credit cards, your score’s going to take a hit. That doesn’t mean keeping cards open if you’re not using them though: Equifax and TransUnion advise closing old accounts to keep your total credit limit from getting too high.

Desperation. When you apply for a financial product, lenders run either a “soft” or a “hard” credit check, and it’s important to know the distinction between the two. A soft credit check has no impact on your credit score whatsoever, and it’s pretty standard for many lenders to ask for one. But a hard credit check – which is less common – does get– recorded on your file). So if you’re rejected for one loan and immediately apply for another, the new lender will be able to tell. Desperation’s not a good look – especially if your file lists lots of applications in quick succession. Play it cool, man.

Invisibility. Brits should make sure they’re visible citizens: you can boost your score by signing up to the electoral roll, as it’ll help lenders confirm your name and address. (You should also be on the electoral roll because it’s illegal not to be.)

Unreliable friends and family. If you’re in the UK and have a joint account with someone, lenders can look at their credit history when they’re assessing yours. So if you’ve ever had a joint utility bill with a flatmate, your ratings are tied together (don’t worry, you can ask the bureaus to remove these people from your file if they’re no longer in your life).