Your credit score is incredibly important. Whether you want to buy a home or borrow money to fund a purchase, such as a car, what’s in your credit file will have a big impact. That’s why it’s so important to understand how you can influence your credit performance – as well as the factors that don’t affect your credit score at all.
What is a credit score?
There is no such thing as a universal credit score in the UK. Instead, we all have a credit file that contains details of financial history. This will include any previous borrowing, as well as data on where you’ve lived and personal details, such as your name and date of birth. Lenders will use the information in your credit file to compile their own credit scores and will apply this credit score when making decisions about any applications you make to borrow. Credit reference agencies (Experian, Equifax and Call Credit) also use the information in your credit file to compile a credit score for you. Each of these agencies uses a different scale for credit scores – Experian’s score is out of 999, Call Credit’s is 710 and Equifax is 700.
What affects my credit score?
If you’re about to make an application for a mortgage or considering looking for a new credit card or a loan, the question “what affects my credit rating” is an important one. These are some of the factors to bear in mind:
- Your payment history. Have you missed repayments in the past or made them late? This will affect your credit score.
- How much credit you’re using. In terms of the total credit available, the percentage that you’re using will be factored into your credit score.
- Negative information. For example, do you have any County Court Judgments against you for non-payment or issues with bankruptcy?
What can affect my credit score and what can’t impact it?
It’s often easier to identify what is likely to affect your credit score – but what factors aren’t going to have any influence over whether you will be accepted by a lender when it comes to borrowing? These are 5 key things that won’t affect your credit performance:
- Your social media use. Although there have been rumours about what you say and do on Twitter or Instagram affecting your credit performance there is absolutely no evidence to suggest that lenders look at this. They don’t ask for social media details during the process of an application and your social media profiles don’t appear in your credit file.
- How old you are. Given the wealth of anti-discrimination legislation that now exists there could be all sorts of issues for lenders and credit reference agencies if there was any evidence that age was being factored into credit score. If you don’t pay your debts on time at 20 this will have as much impact as it will at 60 – you’ll be viewed as a credit risk no matter how old you are. It’s worth noting that age can sometimes feature in the decision making process for a lender when it comes to length of loans or a mortgage term – but it can’t be taken into account in terms of credit performance.
- Checking your credit score yourself. If you’re regularly checking in with your credit history this isn’t going to degrade your overall credit performance. In fact, it’s good financial practice to make sure that you’re aware of what’s in your credit file and how you’re viewed by credit reference agencies. The more often you check in with your own credit score the easier it will be to spot mistakes or fraud and to keep you on track if you’re trying to improve it.
- Soft searches. Every time a credit check is carried out against your credit history it will appear on it. However, there is only one type of check that will have any impact on credit performance and that’s a hard search. If you’re not sure what type of search you’re authorising and you’re concerned about credit performance then make sure you clarify the position before any search goes ahead. A soft search won’t have any impact at all but a hard search will.
- Although your income may be a factor in a lender’s decision making process it doesn’t actually impact your credit performance. Credit scores are compiled on the basis of how you’ve handled credit in the past so what’s really important is how much you’re borrowing and whether you’re making – and have always made – the repayments on time.
When it comes to understanding your credit file it’s as important to know what doesn’t affect your credit performance as what is likely to affect your credit score. Being aware of these influences will make it much easier to get the credit that you want when you need it most.