What affects your credit score?

Understanding exactly what affects your credit score - and what doesn't - can help you keep your credit score in top shape.

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Lenders use your credit score to help them determine whether they are happy to offer you credit, whether that’s a loan, mortgage or credit card. The higher your credit score, the more likely you are to get accepted and the more likely you are to secure the best interest rates. This makes it important to understand what can cause your credit score to change and the steps you can take to improve it if necessary.

Here’s what you need to know.

5 things that affect your credit score

Below is a list of 5 things that could affect your credit score:

  1. Your borrowing history. If you’ve never borrowed before or have little experience with credit, your credit score is likely to be low simply because there’s nothing to indicate whether you can manage credit well. On the other hand, having the same credit accounts for a long time shows you can manage them responsibly, which could help your credit score.
  2. Your repayment history. Whether you’ve kept up with your past credit repayments can also impact your credit score. Missed or late payments can work against you.
  3. Existing credit and balances. The amount of debt you currently carry and whether you are close to your credit limit also affects your credit score. Your credit utilisation is how much of your available credit you’re using. It’s best to keep it below 25% if you can, or if not, try to keep it below 50%. Note that closing a credit account could increase your credit utilisation ratio.
  4. Credit mix. Using different types of credit, such as a mortgage, credit card and personal loan, shows you can manage different types of credit effectively and could help your credit score.
  5. Financial links. If you have a joint mortgage or loan, this can create a financial link with the other person and may affect your ability to get credit if the joint account holder has a poor credit score.

What’s good for your credit score?

A number of factors can have a positive impact on your credit score. Lenders want to see that you have borrowed responsibly in the past and have managed credit over a long time. Take a look at the following:

  • Keeping within your credit limit and keeping balances as low as you can. Owing less than the amount you’re allowed to borrow looks good on your credit report.
  • Having a long history of credit repayment. Credit scoring looks at the average age of your credit accounts, so if you’ve had the same accounts for a long time, this works to your advantage.
  • Paying on time. Making your repayments on time and in full each month boosts your credit score. You can set up a monthly direct debit to help you remember to pay on time.
  • Registering on the electoral roll. Companies use the electoral roll to confirm your identity and address, so registering can improve your chances of getting accepted for credit.
  • Staying in the same job and at the same address. Lenders like stability, so if you have been in the same job and living in the same house for several years, this can help you.
  • Regularly checking your credit report. Check whether there are any mistakes on your report and if there are, get them corrected as soon as possible so they don’t affect your chances of getting credit.
  • Removing financial associations. If you had a joint account, but it’s since been closed down, check that the financial link between you and the joint account holder has been removed on your credit report. If it hasn’t, contact each credit reference agency to get it removed.

What’s bad for your credit score?

Likewise, several factors can drag your credit score down. These include:

  • Late or missed payments. If you don’t make payments on time or miss them completely, lenders view you as unreliable and high risk. If you miss payments regularly, your lender may record a default which can lower your credit score for up to 6 years.
  • Opening lots of new accounts in a short space of time. Each time you make a credit application in full, it causes your credit score to drop. Although it’s usually only temporary, if you apply for credit too often, your credit score won’t have time to recover.
  • Being close to your credit limit. If you get too close to your credit limit or exceed it, lenders might think you’re struggling financially. Your credit utilisation ratio also increases.
  • Borrowing more than you can afford. If you can’t pay off your debts, you might have to get an individual voluntary arrangement (IVA) or you might get a county court judgment (CCJ) issued against you. You might even have to be declared bankrupt. All of these have a huge negative impact on your credit score.
  • Having little to no credit history. If you’ve never borrowed before, your credit score is likely to be low, as lenders have no way of knowing how reliable you are as a borrower.
  • Certain financial associations. If you have a joint account and your partner has poor credit, this can affect your own ability to get accepted for more credit in the future.

Things that don’t affect your credit score

There are also a number of factors that won’t have any impact on your credit score. These include:

  • Being turned down for credit. Although each application you make causes your credit score to drop temporarily, your credit report won’t show whether the application was successful.
  • Your income and savings. Your credit report only reflects what you borrow, not what you earn and have in savings. However, lenders usually ask about your income if you’re looking to borrow money.
  • Receiving benefits. If you receive Universal Credit or other benefits, this won’t be listed on your credit report.
  • Soft credit checks. Many lenders let you use eligibility checkers when you’re applying for credit to help you assess how likely you are to get accepted for a particular product. These only use “soft” credit checks, which means it won’t impact your credit score. When you make your application in full, the lender carries out a “hard” credit check which can impact your credit score.
  • Using a debit card. Spending money on a debit card won’t affect your credit score. However, if using your debit card takes you into an overdraft, this could impact your credit score.

Misconceptions about what affects your credit score

There are many myths about what affects your credit score, so we’ve outlined some common misconceptions to help you understand what’s fact and what’s fiction.

  1. The previous occupants of my home can affect my score. It doesn’t matter who previously lived in your home, whether they had millions in the bank or were struggling with debts – previous occupants cannot affect your credit score.
  2. My credit score can be affected by people who live with me. Similarly, anyone who lives with you won’t affect your credit score unless you hold a joint account with them. If you do, you are financially linked, and if they have poor credit, it could affect your ability to get credit in the future.
  3. Gambling transactions can lower my credit score. Your credit file doesn’t contain information on what you bought or where you bought it, so gambling transactions are not likely to show on it. This means it won’t directly affect your credit score. That said, lenders are likely to check your bank statements when you apply for a loan or mortgage, and they are likely to take this type of transaction into account when deciding whether to let you borrow. Find out more about gambling and your credit score in our guide.
  4. Things from my distant credit history can affect me now. Most of the information on your credit report stays there for 6 years. This includes late payments, defaults, bankruptcy and county court judgments. After that time, it is no longer there for future lenders to see. But even before then, lenders tend to focus on more recent information.
  5. Checking my credit record hurts my credit score. You can check it as much as you like, and it will not impact your credit score. In fact, it’s best to check your credit report regularly to make sure there are no mistakes or any suspicious entries that could suggest you’ve been a victim of fraud. You can check your credit record for free with Finder’s credit score product.

Why is it important to know your credit score and what affects it?

Understanding your credit score and what affects it is important if you want to apply for any type of credit, be it a loan, credit card or mortgage. The lower your credit score, the less likely lenders are to offer you credit. Or if you are accepted, lenders will likely offer a higher interest rate, and you might not be able to borrow as much as someone with good credit.

Check your credit score regularly to estimate how likely you are to get accepted for credit before you apply. If your credit score is low, there are steps you can take to improve it, and you should see an improvement in your score within 6 to 12 months.

Finder survey: How important do Brits think it is to have a credit score?

Very important44.09%
Quite important38.37%
Not that important10.27%
Not important at all3.68%
I don't know what a credit score is3.59%
Source: Finder survey by Censuswide of Brits, December 2023

How to improve your credit score

We’ve outlined some ways to improve your credit score below. But you can find out more in our guide.

  • Register on the electoral roll. This helps lenders verify your identity and address. It’s free to register via the gov.uk website.
  • Pay your bills on time. This includes your phone, broadband and energy bills as well as credit card, loan or mortgage repayments.
  • Reduce your credit utilisation. As mentioned earlier, this is the total available credit you use. So if the total of your combined credit limits is £2,000 and you’re using £1,000, your credit utilisation ratio is 50%. It’s best to keep it below 25% if you can.
  • Correct mistakes on your credit report. Even small mistakes can negatively affect on your ability to get credit, so get them corrected. You can also add a ”Notice of Correction”, which gives you up to 200 words to explain a missed payment, for instance.
  • Stay in the same home and job. Lenders like stability, so avoid moving house or jobs too often if you can.
  • Keep old accounts open. This can show lenders that you can successfully manage credit accounts over a long time.
  • Space out applications. Try to avoid applying for lots of credit at once and space out applications by at least 3 months, preferably 6.

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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio

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