What information goes into calculating a credit score?

Credit scores are one small part of life, but they don’t always feel that way. When you have a low score, it can feel like there are big barriers all around, holding you back and stopping you from accessing the things you want or need. This can be frustrating – particularly when you are confident that you’ll be able to afford the repayments.

Confusingly, each credit reference agency uses a slightly different scale and scoring system to present your credit score. However, one thing remains the same; the higher the number you are given, the better your credit. Rebuilding your score and getting that number up is a process that takes time and commitment – but it can be done.

To make steps towards improving your credit score, it’s important to first understand what kind of information companies and credit agencies take into account when calculating your number. Each of the following points has an impact on your credit score:

The Good

• Being on the electoral register. This ensures companies know where you live, which lowers the risk of lending to you – even if you’re living with your parents or in student accommodation.
• Borrowing what you can afford. This is a big one. We all need a little help from time to time, but it’s important to stay realistic about what you can afford to pay back each month and think carefully about whether you really need to borrow.
• Regular payments. Even if you just pay the minimum each month, it is absolutely essential that you keep up to date with your payments. Missed payments are the #1 red flag for lenders.
• Keeping your balances low. When the “money” is there on your credit account it can be tempting to spend it, but think long and hard before you do. Keeping your balances low and your bills paid is one of the best things you can do to boost your credit, especially if you stick with the same companies for a long time.
• Checking your report regularly. Look out for anything that doesn’t sound quite right so you have the chance to fix it.

The Bad

• • Opening lots of new accounts. Opening a new bank account should only lower your score in the short term, but if you open a few too close together, your score could be negatively affected for a while.
  • Too many applications. If you apply for too much credit in too short a space of time, lenders are more likely to view you as a risk.
  • Percentage of credit used. Being close to your credit limit might tell lenders that you have become overly reliant on borrowing as a way of making ends meet.
  • Debt you are unable to repay in a reasonable amount of time. This signals to lenders that you may have borrowed more than you can afford. If this amounts to anything like bankruptcy or a County Court Judgement being registered against your name, you may find it incredibly difficult to borrow for years to come.

The Ugly

• Missing payments. Unfortunately, missed payments, even when they come from a small oversight on your part, can spell big trouble for your credit score – with defaults haunting your report for as much as six years.
• Having little or no credit history. It seems unfair, especially considering that you’ve never technically missed a payment. Lenders like to see a good track record of finance you have borrowed and paid back in good time – there are plenty of little things you can do to start building a positive credit history.

It’s important to remember that different companies, and indeed, credit agencies use different information to calculate your credit score – often assigning their own values to relevant pieces of information. This means that the various ways that companies respond to your applications aren’t always directly comparable. Just because you don’t get the result you want with one doesn’t mean that you won’t with another.

Remember that your credit score also changes from month to month. By knowing and understanding these facts, you can make sure it journeys slowly but surely up into the green, rather than creeping down deeper into the red.

If your credit score is holding you back, turn to us at Fair for You. We offer flexible repayment plans on household essentials and more. Yes, we do run credit checks but our decision isn’t only based on your credit score.

It can, however, be really crucial that you improve your credit rating in order to get a loan. Find out more about our approach to credit ratings, or watch our video on what to do if your loan was declined.