What factors affect your credit score?

What is your credit score?

Your credit score is a number that represents the risk you pose to lenders when you borrow money. The higher your score, the better. A good credit score will make it easier to borrow money at competitive interest rates.

A number of elements feed into your credit score. Your payment history on debts and other credit agreements is arguably the most important; but your salary and how much money you have in savings don't matter at all.

Experian, one of the UK's three credit reference agencies, recently updated its scoring model — expanding its scale from 0–999 to 0–1,250 and giving more explicit weight to rent payments, overdraft use, and cash withdrawals on credit cards. Equifax and TransUnion use their own separate scales, but the underlying financial habits that matter to lenders are broadly similar across all three.

Credit utilisation and payment history

These two tend to cause more of an impact than anything else, so they're worth getting right first.

• Your credit utilisation ratio is the percentage of your available credit you're currently using. For example, if you have a £1,000 credit limit and a £400 balance, your utilisation is 40%. It's best to keep this below 25-30% across all your accounts — but it's not just the number itself that matters. Whether your utilisation is heading up or down over time also makes a difference, so paying down a balance steadily is more valuable than it might seem.
• Making payments on time will improve your credit score — and Direct Debits are a good way to ensure you don't miss any. Paying debts such as mortgages, credit cards and loans on time will boost your score, and the same goes for agreements like your mobile phone, energy, and broadband.

A missed payment is usually only reported once it's more than 30 days late, so a payment that's a few days behind generally won't affect your score — but it's still best to pay on time wherever possible.

If you have missed a payment in the past, how recently it happened matters too. A mark from several years ago carries far less weight than one from more recently, so your score should recover more the longer you go without another slip.

Using a credit card to withdraw cash is also worth avoiding where you can — it's viewed as a sign of financial pressure and can affect your score even if you pay the balance back on time.

Credit checks and searches

Every time you apply for credit, the lender runs a 'hard' search on your file. This can cause a small, temporary dip and leaves a footprint other lenders can see. Making several applications in a short space of time can make it look like you're struggling financially, so it's worth spacing them out.

If an account has gone to a debt collection agency, this shows up as a search on your file too — and lenders tend to view this as a serious warning sign, since it usually means a debt wasn't resolved directly with the original lender.

Checking your own score is different — it's a 'soft' search, only visible to you, and has no effect at all.

Other things lenders look at

Being registered to vote at your current address has a positive effect on your score, since the electoral register is used by both credit reference agencies and lenders to check your identity.

Staying at one address for longer, and keeping the same bank,are both small signals of stability that lenders like to see. Rent payments only count if they're reported to a credit reference agency — most private landlords don't do this by default, though rent reporting tools can help.

If you take out a joint loan, mortgage, or credit agreement, the other person's credit history becomes linked to yours — they become known as a 'financial association'. Simply sharing an address or getting married doesn't create this link on its own.

A mix of credit types (a card, a loan, an overdraft) tends to be better for your score than relying on just one. If you've never borrowed before, you'll have a 'thin' file, which can itself hold your score back — building it up gradually, and paying in full each month, can help.

Experian Boost is a free tool that adds positive payment data — like Council Tax or streaming subscriptions — to your file. So, if you’re working on building a credit history from scratch, it’s worth considering.

What negatively affects your score

Alongside missed payments, the biggest negative influences are:

• Opening too many new accounts
• A high credit utilisation ratio
• Frequent cash withdrawals on credit cards
• Individual Voluntary Arrangements (IVAs)
• Debt Relief Orders (DROs)
• Bankruptcy
• County Court Judgments (CCJs).

What doesn't impact your score

A few things people often worry about, but don't actually affect your score at all:

• Your job and income
• Being on state benefits
• Your relationship status
• Ethnicity and gender
• Your address
• Flatmates and cohabiting partners
• Savings and investments
• Missed payments or defaults from more than six years ago

There's a lot that goes into your credit score, but you don't need to get everything right at once.

Keeping your credit utilisation low and paying on time are the two things most worth focusing on — everything else, from the electoral roll to your credit mix, plays a smaller supporting role. If you're not sure where you stand right now, checking your credit report is free and won't affect your score, so it's a good place to start.