In The Beginning
There are many factors affecting credit score. Some you can do something about quite easily, others not so much. There are 3 main credit reference agencies (CRAs) in the UK. Each one scores people differently so a 600 score might be excellent with one but hopeless with another. So let’s not worry about each individual company’s scoring at this point.
The three main UK agencies are Experian, Equifax and Call Credit. Call Credit are now owned by the American company TransUnion. Call Credit used to be called Noddle. Then Credit Karma, just so you know.
All three companies use similar methods to score us. That means we won’t get carried away by how they score us separately. We’ll just focus on the general factors which affect all of our credit scores.
Payment History 1 – Negative Information
The single most important factor which influences your credit score is previous repayment performance.
There are 2 strands here with regard to payment history. The first is what’s appearing on your credit file as a semi-permanent feature. Things like County Court Judgements (CCJs) and Individual Voluntary Arrangements (IVAs). Credit Relief Orders (CROs), bankruptcy proceedings and default notices.
Have any of these and it is unlikely you will be approved for credit anywhere. Most of these with the exception of default notices stay on your file for 6 years. After which you can apply to have them removed. This is what we mean by semi-permanent.
Payment History 2 – Actual Repayments
Secondly, and almost as important, is how you have conducted your current credit agreements as well.
These will be things like do you pay your mobile phone bill on time. Have you missed any loan payments to other lenders in the past 12 months. Are your credit card payments up to date and what is the state of your bank account? Keep popping into the red with no agreement and you’ll find yourself getting blanked by most lenders.
Missing a mobile phone payment for example will result in a default being registered against your name. This effectively bars you from most forms of credit for six months. After that period your slate is wiped and you can start again.
Credit Utilisation Ratio
Your credit utilisation ratio – sounds flash and fancy doesn’t it? It isn’t. It’s the difference between how much you’ve spent on your credit cards and your remaining amount of credit available.
Have a £10,000 credit limit across 4 credit cards with £1,000 spent on each and your credit utilisation ratio is 40%. Lenders like your credit utilisation ratio (hereafter called CUR) to be around 25%.
What this shows them is that you can manage your money (or someone else’s in this case) responsibly and you’re not getting into too much debt. It also shows you are able to service the debt without relying on the minimum payment each month.
Time On Electoral Roll
If a lender can’t find you anywhere on an electoral roll search it looks to them like you might be trying to be elusive. One reason to be elusive is to try and avoid being caught up with by people to who you owe money.
This never works, especially these days when everyone lives via a mobile phone which records everything from your payments for whatever you buy to your physical location.
Too many addresses in a short space of time may also indicate a problem unless you have a job that requires constant relocation. It’s best to have a few addresses over a nice long period of time showing a stable environment.
Hard Credit Searches
This can work both ways for you. Some credit search models like it when they see a group of close together in time hard searches as it may show you shopping around to get the best deal for yourself.
On the other hand, depending on who’s doing the searching it could be that you are desperate for credit that no one will lend to you and you are trying your best to get something from anyone. That doesn’t look good to your next prospective creditor.
Account Numbers & Closures
The number of credit cards and loans you have will affect your credit score for a variety of reasons. For instance, have 4 credit cards with over 50% CUR (remember that?) alongside 3 open, ongoing loans and regardless of how you’ve been repaying them most lenders will want to take a very close look at you to make sure you can afford the repayments now and in the future should something untoward happen.
In fact, you would be fortunate to find anyone to lend to you with that amount of credit already in place. You might think it prudent to close a couple of credit card accounts if your balance is low enough to either pay off or transfer elsewhere but when you do that you are playing around with your CUR again.
You may find you suddenly go from a 50% CUR up to 90% just by closing one credit card and doing away with all that extra available credit. It pays to think these things by covering as many angles as you can. Like not closing the account you’ve had the longest. Lenders like relationships they can see going back years, especially if it’s a good one.
Credit Limits
It’s as simple as this: the higher your credit limit the better a credit risk you appear to a new lender. No one will give an 18-year-old fresh out of school, never had any credit before, a credit card with a £10,000 limit (there are a few very rare exceptions).
However, don’t get too excited if your balance is £9,950 on your £10,000 limit credit card, you might just struggle to get another. Refer back to the bit about CUR!
Things Not To Worry About
Not everything you buy ends up on your credit file, it is, after all, a credit file. Therefore the items you buy in the supermarket or the night spent in the pub won’t affect your score (thankfully!) as we are only concerned here with credit.
Your credit file only contains information relating to loans, credit cards and anything else you don’t have funds for immediately but must rely on someone or something else to buy for you.
Likewise, the people who live in your block of flats can be as bankrupt as they like because it’s not going to affect you one bit. Nor does it matter if your lodger hasn’t paid his mobile phone bill.
Or your husband hasn’t repaid his business loan. As long as your name isn’t on the credit agreement it will not go against you if any member of your household, family or town doesn’t hold up their end of a credit agreement.
That’s it from us for this blog post. We hope you like it and find it both interesting and informative. See you next time.
Badger
