What factors affect your credit score?

Your credit score is becoming increasingly more important in different aspects of your life. Many different types of lenders now access your credit file to determine whether you’re eligible for any sort of credit, finance or loan. You may find yourself with a bad credit score and may be confused as to why. But don’t worry, Refused Car Finance are here to help, with advice on all the factors that affect your credit score and how to improve it!

What is a credit score?

Your credit score is basically a reflection of how good you are at managing your money and making repayments. Your credit score is usually a number which is recorded on your credit file. Think of your credit file as your financial CV. Your credit file shows your borrowing and repayment history and the information held on your credit file determines your credit score. Your credit score is usually checked when you apply for things such as mortgages, mobile phone contracts, car finance, personal loans or any other sort of credit. So, what factors affect your credit score?

Payment history

This is one of the biggest things that affect your credit score. Lenders want to know that if you borrow money from them you will be trusted to pay it back on time and in full. Missing payments, late payments, County Court Judgements (CCJs), bankruptcy, Individual Voluntary Arrangements (IVAs) can all seriously harm your credit score.

Your current credit

Lenders will also assess the amount of credit you currently have available to you and how you use it. They also look at the amount of debt you currently have. If you have a credit card or equivalent, you should only use about 30% of your credit limit and keep your credit utilisation low. Having too much debt can seriously affect your credit score. However, your credit score can increase when you pay off your balances.

Number of credit searches

Having multiple searches on your credit file can drag your score down. When you apply for credit, lenders will have a look at your credit file and this is classed as a search. A hard search is when a lender views your file and it is recorded on your file. Multiple hard searches can indicate to lenders that you are desperate for any sort of credit which may put them off. If you are applying for credit, make sure you use companies who provide a soft search which doesn’t leave a mark on your file or harm your credit score.

The age of your credit

A long credit history of good borrowing and repaying can massively increase your score and chances of being approved by lenders. They can clearly see you are good at managing your money. A short history is also fine if you’ve always made your repayments on time. However, opening multiple new accounts at the same time can be harmful as it may indicate you can’t cope with your current debt.

Types of credit

Having different types of accounts can improve your credit score as it shows you have experience manging various types of credit, as long as you make all your repayments on time. Lenders look at a mixture of credit and use it to understand your financial history.

How do you improve your credit score?

There are many easy ways you can improve your credit score in order to put you in a better financial position. Firstly, you should make sure you are registered on the electoral roll. This is an easy way for lenders to verify that you are who you say you are and also verifies your living address and history. You should also get into the habit of checking your credit file each month. Make sure you check for any mistakes or fraudulent activity as this may lower your credit score. You should also disassociate yourself from any financial partners if you are no longer sharing a joint account as their score can negatively affect yours. It’s easier said than done but you should also try to make all your payments on time. This can be hard if you’ve had problems in the past making repayments on time. However, even having 3 months’ worth of making payments on time can help to rebuild your score.

About the author: Refused Car Finance are a bad credit car finance specialise who help people with low credit scores gain car finance. They aim to make car finance assessable no matter what your circumstances. They also provide many hints and tops on how to rebuild your credit score across the internet.