Why your credit score isn’t as important as you think

Did you know that lenders don’t actually see your credit score? They usually create their own for you based on the information from your credit report. But this score isn't the only thing lenders look at.

Many people worry so much about their credit score number, but lenders care about other things too. Let's explore what else matters when you apply for a loan or credit card.

Your money coming in and going out

Lenders want to know if you can afford to pay them back. They look at:

• How much money you earn each month
• How much you spend on bills and other needs

They might ask you to show pay slips or bank statements. This helps them see if you have enough money left over each month to make payments towards your new form of credit.

How much debt you already have

Lenders compare your monthly debt payments to your monthly income. They call this your ‘debt-to-income ratio’.

Here's how you can work it out yourself:

1. Add up all your monthly debt payments
2. Divide this number by your monthly income
3. Multiply by 100 to get a percentage

For example, if you earn £1,500 each month and pay £300 toward debts, your ratio is 20%:

• £300 ÷ £1,500 = 0.2
• 0.2 × 100 = 20%

A lower number is better. It shows lenders you don't rely too much on borrowing money.

How much of your available credit you're using

Lenders look at how much of your available credit you're already using (credit utilisation) on products like credit cards and overdrafts. Try to use less than 30% of your total credit limit.

For example: If your credit cards allow you to borrow up to £1,000 in total, try to keep your balance below £300.

This shows lenders you can manage your money well and aren't maxing out your cards.

Your stability

Lenders feel more comfortable when you:

• Have lived at the same address for a while
• Have had the same job for some time

Register to vote by signing up to the electoral roll. This helps lenders check your address quickly. It only takes about 5 minutes to enrol on the government's website.

Your credit history matters more than your score

Your credit history shows how you've handled money in the past. Lenders care more about this than any score number.

If you've paid all your bills on time, lenders will see you as responsible. If you have a ‘default’ (a missed payment that wasn’t resolved), this can be a red flag.

Good news. Lenders care most about recent behaviour. Mistakes from years ago matter less than recent ones. After six years, defaults drop off your credit report completely.

If you pay off an old debt, your default will be marked as ‘satisfied’, which looks better to lenders.

Key points to remember

• Your credit score is just one way of assessing your credit report, and differs from lender to lender
• Your income, expenses, and existing debts matter a lot
• Try to use less than 30% of your available credit
• Register to vote to prove your address and stability
• Pay your bills on time to build a good credit history
• Recent financial behaviour matters most
• Mistakes from the past become less important over time

Working on these areas will help you more than just focusing on your credit score number!