Factors affecting your credit score

Factors affecting your credit score

It’s always advisable to keep a check of your credit rating.  Knowing where you stand financially and how credit-worthy you are is essential as it ultimately affects mortgage and credit card applications. 

Your credit score can be of vital importance as it is the most used factor in deciding whether a creditor should lend to you or not.  It can determine just how much you can borrow, the interest rate, and it can even affect the payment terms and conditions. 

Independent mortgage advisors will work with you on your credit rating, looking at your current financial standing as well as your credit history, to help find the best mortgage deals and rates for you.   

They are also in a strong and more informed position to help you look at ways to improve your credit score, which can be highly effective. 

Your credit score explained 

You will be given a credit score after all of your personal banking information has been reviewed, ultimately looking at how you manage credit. 

From this information, a single number is derived, which defines your credit score. 

Your credit score and other factors will help determine whether you can take on a phone contract, how much interest you will pay, payment terms, and ultimately it can make or break a property purchase. 

Hence, a good score can increase your chances of a successful mortgage application. 

Average credit score UK 

You can check your credit score through one of the three leading credit reference agencies in the UK, Experian, Equifax, and TransUnion. 

These companies will hold all the financial information that lenders will use to make financial decisions. 

Each agency has different score metrics, and, in some instances, it can be beneficial to check your scores across all three. 

What is a good credit score? 

  • Experian’s scoring ranges from 0-999, with a good score rated as anything over 881.
  • Equifax scores range from 0-700, with a good rating standing at over 420.
  • TransUnion scores range from 0-710, with a good score considered to be anything over 604.

Information you will find on your credit report 

  • Contact details
  • Number of credit applications
  • Financial links to others
  • Late or missed payments
  • How much debt you have
  • Any CCJs against you
  • If you’re on the electoral register
  • If you’ve ever been declared bankrupt or entered into an IVA.

Online mortgage brokers will also make their lending decision based on your application form, highlighting salary, past credit information, and your credit report. 

This is why you must manage your credit score at least a year in advance of you looking to apply for a mortgage loan or a re-mortgage. 

Tips to help you improve your credit score 

Knowing what affects credit score and how you can manage these will help you find ways to improve your overall rating. 

Influencing factors include: 

Keeping up your payments – never missing a payment and ensuring you meet the minimum payments can improve your overall rating. 

Sticking to a budget – working out your fixed monthly bills and knowing how much you have remaining at the end will help you budget and avoid overspending. 

Keeping your details updated – it’s important to make sure that your details stay up to date, so systems and mortgage underwriters have all the correct information to hand to base their decisions on. 

Limiting your credit applications – every time you apply for any type of credit, you leave an imprint on your credit file.  If there are many applications, especially in quick succession, it can appear that you are in financial difficulty. 

Keeping an eye on your credit report – checking your credit report and knowing your rating before applying for credit can provide you with a benchmark for improvement. It’s also essential that you check all the report’s information is correct and update this as appropriate. 

Checking your financial links to others – make sure you aren’t financially connected to anyone you shouldn’t be, i.e., ex-partners, flat share links, etc., as this will affect your score. 

Registering to vote – registering on the electoral roll will improve your credit score as your identity can be easily identified, adding up to 50 points to your score. 

Proving you can manage debt – if you have never had credit, you don’t have any proof you can manage repayments.  Taking out some form of credit on a small scale and making the repayments will boost your credit score.   

Don’t keep hold of any unused accounts – close them.  Also, look to consolidate multiple credit cards into one, looking at interest-free balance transfers as an option. 

Checking for fraudulent activity – if something on your report looks wrong or doesn’t apply to you, contact the agency and ask for your file to be updated. 

Reducing any existing debt – before applying for another line of credit, you should look to pay off any outstanding debts first. 

Using less credit than you’re offered – i.e. if you have a credit limit of £2,000 but only use £1,000, this is viewed positively by lenders and does increase your credit score. 

Don’t withdraw cash on credit cards – it is expensive and can also show poor money management. 

Never work with a credit repair company – avoid them at all costs; they can do nothing that you can’t do yourself. 

To help you secure the best mortgage, it’s important to work on improving your credit score.  All the points mentioned above will work, but they will take time. 

Independent mortgage advisors will be best placed to advise you on current financial products available, work with you to understand your credit rating better, and more. 

To find out how you can work with a mortgage company to get a mortgage based on your credit score (good and bad), make sure to check out our latest post here

If you liked your credit report explained in detail or to find out why you may have been refused credit, speak to a member of our team today on 0330 229 1991.

Reference video: The Credit Shifu
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