What Affects My Credit Score?

Don’t Let Financial Jargon Confuse You

Try as we might to manage our money smartly, personal finance can be an extremely tricky balancing act. With so much jargon within the industry that feels like it’s been purposefully used to confuse us, it’s no surprise that so many people end up misunderstanding what they’re signing up for and what is being done with their money.

One such area of confusion is credit scoring. While it’s a term that’s used liberally across the industry, it isn’t often given a thorough explanation or discussed at length, so it’s easy to feel left in the dark where your credit score is concerned. Given the importance and ubiquity of the term, there should be more done to make people aware of what their credit score means, how it is calculated, what affects it and how – if needed - it can be improved.

There’s no need to feel anxious when it comes to personal finance, and there’s no such thing as a stupid question – so here, jargon free, is an explanation of what your credit score is all about.

What is a Good Credit Score?

Calculated automatically, your credit score is represented by a number so that a lender can assess your creditworthiness without prejudice.

In general, the higher the score the better, with larger numbers corresponding to a higher likelihood of repayment, which will obviously be advantageous. Something that will affect any application for a credit card, finance, loan or mortgage, it’s one of the most important pieces of financial information you can have, and it can be extremely limiting to have a poor score if you’re wanting to make any kind of long-term investment or purchase.

Here is a run down of the types of things that can affect your credit score, how you can manage them and, if needed, how you can go about improving them.

Payment History

This is the largest factor in determining your score as it measures how consistently you’ve managed to pay regular bills on time. It goes without saying, then, that late or missed payments will negatively impact your record in this regard. By ensuring that you’re only taking on services you can afford and settling those bills on time, you will improve your score over time.

Number of Accounts

This measures how many credit-dependent accounts you have open at any one time. Considering how many of these accounts have a balance on them, this can be a factor in determining your score. It is far better to have more zero-balance accounts than carrying a balance across multiple lenders.

History of Credit Use

Using your historical activity and behaviour to gain a better idea of how you may act in the future, your score factors in how long you’ve had credit accounts open for, how many and the dates of your oldest and your newest. This also considers the average age of your open accounts, too. As a rule of thumb, a longer credit history is more advantageous than a shorter one.

Credit Utilisation Rate

This looks at the total amount of credit you have available - which is based on your credit card limits – against how much of the credit you’re using. A low credit utilisation rate alludes to better management of credit, and lenders will typically prefer a ratio of 30% or less where possible.

Negative Information

These are pieces of information about your financial history that show you in a more negative light. Situations, such as a bankruptcy or arrears on your existing credit may drag down your score depending on the degree of severity of what is found. This isn’t completely debilitating, however, as your credit rating can be rebuilt over time with improved financial management and behaviour.

Hard Searches

Sometimes when a request for credit is made – and even sometimes when a request is made to look at your score – a note of any hard searches will be filed against your report. If this is deemed excessive, lenders may deem you a greater credit risk. When you are obtaining a quote the vast majority of lenders register a ‘soft search’ this search cannot be seen by other lenders and does not impact your credit score. Again, the impact of hard searches will diminish over time.

Credit Mix

This looks into the variety of credit you have available – are you signed up to several loans, have more than one bank credit card or a collection of store cards? This is a way of evaluating your credit habits to give a better picture of your spending and behaviour where credit is concerned.

What Can Hurt Your Credit Score?

Whether you have a good credit score or you’re wanting to maintain or a report that you’re looking to rebuild and improve on, it’s worth knowing what counts against you, so that you can amend and adjust your behaviour accordingly.

Essentially, it can negatively impact your credit score if you fall behind on repayments. The most common mistake is missing payment deadlines on the agreed date of the month. This can happen in many different forms and if it becomes a persistent issue, there are measures that lenders can take which will then go on to your credit file and count against you for a longer period.

The actions they take can include things like registering a default or a county court judgement against you.

How to Improve Your Credit Rating?

Luckily, this is far from complex and easy to manage once you’ve settled into a routine and made the necessary changes to your behaviour.

The first step, quite obviously, is to always pay your bills on time, in line with the agreement in place with your lender. Having a reliable and consistent payment history is the backbone of any high credit score. The next step would be to keep down your credit balance on any account as this will better your credit utilisation ratio, so paying off your debt is a great way to improve.

Get a Quote from Likely Loans

Should you require a quote for credit, you can do so easily via the Likely Loans website. Giving almost instantaneous feedback, using an easy-to-use platform, you can let us know how much you want to borrow and for how many months. We can then tell you what the repayment structure, total and representative APR will look like – all without affecting your credit score.

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