Improving your credit score

Credit scoring is a widely used way to assess the risk of lending money to people.

However, no-one has a single credit score. As well as scores produced by the main credit reference agencies, many lenders also calculate their own credit scores in house. This means you will have multiple credit scores. Each company may consider different information when working out your score and use a different formula.

For example, your credit report held by each of the main credit reference agencies may contain different information. Firms also differ in how many points are awarded for each piece of relevant information, depending on the formula used and any lending policies. Scores are often expressed using different ranges, meaning they won’t usually be directly comparable. While there isn’t just one score, there are some general rules about what could affect your score positively, negatively, or not at all.


What’s good for your credit score?

If you have a history of managing money responsibly then you’re likely to have a good credit score. Lenders often like to see a proven track record of timely payments and sensible borrowing.

Whether you’re working to improve a poor credit score or need to build up credit history from scratch, here are some basic pointers:

  • Only borrow what you can afford. If you want to use credit, make sure you can at least meet the minimum repayments comfortably.
  • Consider setting up direct debits. Regular payments look good to companies, so consider setting up direct debits for things like a mobile phone contract or credit card, to ensure you meet your payments on time and in full.
  • Stay within agreed credit limits and keep balances as low as you can. It looks good if you owe less than the amount you’re allowed to borrow.
  • Try to keep old, well-managed accounts. Credit scoring looks at the average age of your credit accounts, so try not to chop and change too much.
  • Register to vote at your current address. Companies use the electoral register to help confirm who you are and where you live.
  • Check your credit report regularly for accuracy. You don’t want inaccurate negative factors affecting your score, so if you do find anything that needs correcting, contact the relevant company.
  • Help protect yourself and your credit score. Look out for unfamiliar or suspicious entries in your credit report, as these could mean you’ve been a victim of fraud or identity theft.


What’s bad for your credit score?

When lenders check your credit history, they may see some kinds of financial behaviour as a red flag.

If possible, you should avoid or minimise these to keep your score as high as possible:

  • Frequently setting up new accounts. Opening a new bank account should only lower your credit score temporarily – but if you do it too often, your score won’t have time to recover.
  • Being close to your credit limit. Try not to max out your credit card or use your entire overdraft, as lenders may think you’re over-reliant on credit or in financial difficulty.
  • Applying for credit too often. Multiple credit applications can negatively affect your score, regardless of whether they’re successful. This is because each application records a hard search on your report. Try to only apply for credit you’re eligible for.
  • Missing payments. If you miss a series of regular payments to lenders they may record a default on your report. This can significantly lower your credit score for up to six years.
  • Borrowing more than you can afford. If you can’t pay off your debts, you may have to get a Debt Relief Order or Individual Voluntary Arrangement. Lenders can also try to reclaim money you owe by getting a County court judgment (such as a County Court Judgment) issued against you, or by applying to make you bankrupt. Any of these events will significantly reduce your credit score and make it difficult to borrow money or even open a bank account in the future.
  • Having little or no credit history. If you’ve never had credit you’ll likely to have a low credit score. This is because lenders like to see a good track record of sensible borrowing, which helps them decide if you’re likely to pay them back on time.


What doesn’t affect your credit score?

Typically, there are lots of myths and falsehoods swirling around about what affects your credit score and what doesn’t.

Here’s a list of common misconceptions – things that don’t have any impact on your credit score:

  • Previous occupants at your home address. It makes no difference if the previous occupant at your address was bankrupt or a billionaire. Lenders are only interested in your financial details and anyone you’re linked to financially, such as a partner with whom you share a joint bank account.
  • Friends and family you live with. As mentioned above, companies are only interested in people you’re financially linked to – and living in the same house with someone isn’t a financial link unless you share finances, such as a joint mortgage, with them (sharing the rent doesn’t count).
  • Things from your distant credit history. Most of the information in your credit report is held for around six years, and companies often focus their credit scoring on more recent information. So, missing a credit card payment a decade ago won’t affect your current credit score.
  • Checking your credit score or credit report. You can check your own credit score and credit report as many times as you like – it will never have a negative impact on your score.