What affects your credit score?

Your credit score is a three-digit number value, used by lenders to determine whether you are eligible to borrow.

Your credit rating is typically a representation of:

• Information on the electoral register
• Legal factors, such as county court judgements (CCJs) or bankruptcies
• Current and past borrowing in your name, such as credit cards and loans
• Records of previous searches on your credit file

In the UK, your credit score isn’t a universal number, but rather a broader reference to the system that financial institutions use as part of their application review process. This is commonly referred to as a credit check.

Credit scores are important because they impact many scenarios where we might need to borrow money. This could be something smaller, like a phone contract, or a big financial commitment like a mortgage.

Credit scores impact all of these forms of borrowing in three main ways:

• Eligibility (how likely your application is to be accepted)
• Interest rates (how much you pay back on top of the original amount)
• Credit limits (how much you can borrow)

A high credit rating will be a sign of healthy borrowing habits, and a history of reliable repayment through a variety of borrowing methods.

While a low credit score might be a sign of missed repayments, legal trouble, or simply the result of minimal borrowing in the past.

Below are three major factors that can impact your credit score, both positively and negatively, depending on what they indicate.

Borrowing history

Broadly speaking, your borrowing history is a reflection of how much you have borrowed in the past, the borrowing methods used, and the frequency of borrowing.

For example, it may show that you have previously taken out a personal loan, a credit card, and a mortgage. Reliable borrowing and repayment provides lenders with a strong sign that you can be trusted.

If you do not have any borrowing history, perhaps because you tend to live within your means, lenders won’t have anything to base their judgement on. In these cases, they will generally err on the side of caution and may be less likely to accept your application.

Repayment history

This one is simple, lenders need to see that you have repaid debts on time in the past.

Consistent repayment of any borrowed money is crucial to improving your credit score. Doing so will prove to lenders that you can be trusted with future borrowing.

A history of missed or late repayments, on the other hand, will be a red flag to lenders and they may be less willing to enter a loan or credit agreement.

Existing lines of credit (how much you owe)

In addition to past borrowing, lenders want to know what you currently owe and the amount you repay each month.

This includes something called your debt-to-income ratio, which is an assessment of the amount you currently pay towards debts from your income. In other words, it reviews how much money you have left each month, after repaying existing debts.

If you want to improve your credit score, here are three of the best things you can do to positively influence your credit rating.

Making repayments on-time

If you have existing debts, do everything you can to ensure you are able to make the minimum or required repayments each month.

This is important because it’s a clear sign of responsible borrowing for lenders.

If you are finding it hard to stay on top of multiple debts, you might want to consider a debt consolidation loan. These combine multiple debts into a single, more manageable monthly repayment. However, it’s important to note that you may pay more overall at the end of the debt consolidation loan term if you extend it.

Using a variety of credit types

It will reflect well on your credit score if you can demonstrate that you have reliably borrowed through a variety of means, with a history of on-time repayment.

This doesn’t mean that you should take out multiple loans at once, or “max out” multiple credit cards, but rather use various lines of credit responsibly – little and often.

This demonstrates familiarity with borrowing and reliable repayment.

If using a credit card, it can be a good idea to keep your utilisation below 30% as a general rule of thumb.

Electoral roll

While it doesn’t reflect or impact your finances directly, being registered on the electoral roll helps lenders to verify your address.

It also demonstrates that you take a broader interest in important societal issues, by exercising your right to vote and influence government.

If you live in the UK and want to register to vote, you can apply to join the electoral roll here.

Paying bills and utilities on time

By repaying bills and utility providers on time, you demonstrate financial responsibility to lenders.

Missing bill payments, on the other hand, can result in outstanding utility debts being passed onto debt collection agencies. This may result in a negative impact on your credit score.

As a general rule, always repay your household bills on time. It can help to set up a standing order or direct debit with the utility provider, so that the payments come out automatically.

If you’re having trouble paying your bills, don’t ignore it. Contact the utility provider to let them know and they can suggest ways to spread the cost.

There are a number of ways in which you can harm your credit score, sometimes without realising it.

For a healthy credit score, avoid any of the following circumstances as much as possible.

Missing repayments

Missing repayments for existing debts or utility bills can be a red flag on your credit report, as it either shows you weren’t able to make the payment, or didn’t remember to.

In either case, this doesn’t reflect well on your record. To avoid this, always plan ahead and automate payments as much as possible.

Making a lot of applications in a short time

If you make an application for credit and it is unsuccessful, it can be tempting to make another application shortly after. However, doing so can indicate a number of issues, from fraudulent activity on your account, to applying for more credit than you can afford.

If you find yourself in a situation where you have been declined for credit, don’t worry, it happens to people all the time and for a number of reasons.

To learn more about what to do next, you can read our guide on overcoming credit rejection.

Leaving unused credit accounts open

Depending on the type of credit or debt, it can be damaging to your credit score to keep multiple lines of credit open and unused. But equally, there are some cases where keeping a line of credit open can be beneficial.

Before closing a credit account, ask yourself the following:

• Does it demonstrate a strong history of on-time repayments?
• Will it lower your credit utilisation ratio? Remember—you ideally only want to use up to 30% of your total credit limit.
• Will you be tempted to spend on it in future and build up debt as a result?
• Is there a monthly or annual charge for keeping the account open?

If you have unused credit cards, it’s worth considering the questions above.

If you have loans or other forms of long-term debt, paying the debt off will reduce your debt-to-income ratio and could improve your credit score as a result.

CCJs (County Court Judgements)

You might receive a county court judgement (CCJ) if someone, or a company, claims that you owe them money and the court has ruled in their favour.

Having a CCJ against your name can significantly lower your credit score, so it’s best to avoid being in a situation where one can arise, like ignoring bills or late payment notices.

If you receive a CCJ, the first step is to take action to repay the debt. If this is going to be difficult, you can reach out to the company you owe money to and they will provide options to make repayment manageable.

Aim to repay the debt within a month, otherwise a record of the CCJ will stay on your credit report for 6 years.

IVAs (Individual Voluntary Agreements)

An individual voluntary agreement (IVA) is an agreement between yourself and a creditor, to repay debts over a period of time. IVAs are approved by courts and mean that creditors will stop chasing you for repayments and charging interest on the debt.

While in an IVA, it’s crucial that you make the agreed payments on time. You’ll also need to keep the IVA provider informed of any increases to your income, and avoid taking out any new debt or credit.

If you get an IVA, it will show on your credit report for 6 years from the date it was first approved and your credit score will be affected as a result.

There are a number of common misconceptions about other factors that, while assumed to be bad for credit ratings, don’t affect your credit score.

Income and savings

Your credit score is a reflection of your borrowing and reliability. It is not an indication of your salary or how much you have in savings.

Having said that, when making an application for credit, you will usually provide details about your income, which will form part of the eligibility check by the lender.

Therefore, while income does not affect your credit score, it will be taken into account in the context of the amount you plan to borrow and your debt-to-income ratio.

Benefits or Universal Credit

Similar to income, being on benefits or Universal Credit doesn’t directly impact your credit score.

It does mean, however, that you may have lower income and so might be limited in the amount you can borrow.

People you live with

If you live with other people, you might be concerned that their actions or borrowing history are impacting your credit score.

Not to worry, the finances of people you live with aren’t taken into account on your credit report.

If you are both named on any forms of finance however, such as a utility bill or joint loan, you are jointly liable for any associated debts and repayments. This means that you are equally responsible to make repayments on time and your credit scores will both be affected, regardless of whose fault it is.

Past credit mistakes

Credit mistakes can be difficult to face, especially when they appear on your credit report for years to come.

But they aren’t permanent.

In most cases, past mistakes will stay on your credit report for up to 7 years, after which they won’t be an issue anymore. So you can always work on demonstrating reliable credit use and responsible repayment in the meantime to help give your credit score a boost once your former record has cleared.

So far, we’ve covered the standard factors that affect your credit score. But there are a number of other elements you may be wondering about, many of which can be a grey area when it comes to credit.

Overdrafts (arranged and unarranged)

An overdraft allows you to use money beyond the amount in your current account. When you spend more money than you have left in your account, it becomes “overdrawn” and the debt is repayable to the bank.

There are two types of overdraft:

• Arranged—an agreed amount of money that the account provider allows you to go overdrawn
• Unarranged—occurs when you go overdrawn without a prior agreement

Using and repaying an arranged overdraft can be a good way to demonstrate reliability and improve your credit score, providing you stay within the agreed limit.

Whereas an unarranged overdraft will typically be a red flag for lenders.

Above all else it’s important to keep in mind that, if you are using an overdraft, you need to make attempts to actively clear it. Living out of your overdraft for too long could start to have a negative impact on your credit score.

Loans

Loans are a common form of borrowing. When you take out a loan, you agree to a set schedule of monthly repayments.

Providing you stick to the repayment plan, loans can help to improve your credit score.

If you miss repayments however, your credit score will be negatively impacted.

Credit cards

Credit cards follow similar logic to loans when it comes to repayments and credit scores.

Only, with a credit card, your repayment options are more flexible. You only need to make a minimum repayment each month and keep your credit utilisation in check.

Keeping your credit utilisation below 30% can boost your score. However using your full credit limit—or close to it—can negatively affect your credit score, as it indicates that you rely on credit each month.

Car finance

Much like the other forms of credit and borrowing, the rules for car finance are simple—borrow responsibly and repay on time, and your credit will go up.

If you miss car finance repayments, your credit score will go down.

Depending on the type of car finance you choose, credit scores have different levels of influence on your eligibility for finance.

Joint accounts

If you have a joint loan, joint mortgage, or joint bank account with another person, you are both jointly liable for any debts and repayments.

What does this mean? Let’s say you have a joint account with your partner or housemate. One month, they use the card to buy a new phone and the account becomes overdrawn.

It’s not your phone, or your fault, so surely it’s not your problem and shouldn’t affect your credit score—right? Unfortunately, as you are jointly liable for the account, you are both responsible for ensuring any debts are repaid, regardless of whose fault it is.

Moving home

Lenders like stability. That’s why living at the same address for long periods of time can be a positive influence on your credit score.

Equally, if you move house a lot, it may indicate that you are less predictable and your finances might fluctuate over time. It’s an old fashioned view, but it stands as a factor for many lenders.

That’s not to say that moving home should be avoided, in most cases the impact on your credit score will be negligible. But it may be favourable to stay at the same address for longer periods where possible.

After moving home, you may see your credit score fluctuate for a short period as your details update across a number of financial and government records. Just remember, if you do move, don’t forget to register on the electoral roll at your new address!

Student loans

While the name would have you assume otherwise, student loans aren’t really loans in the traditional sense. They are unique in the way that they are repaid and treated by financial institutions.

In reality a student loan is more like a tax, based on your income and applied to your salary until it is repaid or written off.

The bottom line is that a student loan will not affect your credit score directly. However, if you apply for a mortgage, a lender may take a student loan into account when they assess your affordability.

Buy now pay later

Buy now pay later (BNPL) schemes are a form of short-term finance that has become prevalent in online shopping platforms in recent years.

They allow you to pay for items on credit, which must be repaid to the finance provider within a set time period or interest will be charged.

Previously, using these schemes did not affect your credit score. However, in June 2022, the UK government committed to introducing BNPL usage to credit reports. While it’s unlikely this will come into effect until 2024, some BNPL providers have started to share their data with credit reference agencies in advance, so that it can be used in future.

Payday loans and short-term loans

Payday loans and short-term loans provide a quick line of credit for emergency use, often promising a high approval rating.

They typically switch to a very high APR shortly after an initial repayment window and can be extremely difficult to pay off.

It’s recommended to avoid payday loans wherever possible. If you take out a payday loan, aim to repay it as soon as possible—keeping within the repayment period—in order to avoid impacting your credit score.

Gambling

Many of us enjoy the occasional punt on a big sporting event, but does gambling or online betting impact your credit score?

Gambling activity isn’t visible on your credit report and so it won’t directly impact your credit score.

However, betting is notorious for its addictive nature and associated risk of racking up debts. As a result, gambling may be a direct cause of financial difficulty that can lead to negative consequences for your credit score.

If you need help with gambling addiction or debts, independent charities like BeGambleAware and GamCare offer free support.

When you apply for a loan or other types of credit, lenders aren’t solely looking at your credit score. Here’s what else they tend to check.

Your income

Lenders will review your income and your current debt-to-income ratio.

As a result, your income may affect the credit limit you receive (the amount you are able to borrow).

Affordability

When reviewing your debt-to-income ratio, lenders are assessing how much available cash you have in a typical month, to determine what you can and can’t afford.

While lenders’ affordability checks are thorough, it’s important to be mindful of your own finances and ensure you don’t take on debt you can’t afford to repay each month.

Details of your application

Lenders will often look at the wider context of your application—who are you, why are you looking to borrow, are you sound of mind and thinking clearly?