Your Credit Score: What Affects It & How to Improve It
Your credit score plays a crucial role in your financial life. Whether you’re applying for a mortgage, a credit card, or even setting up a mobile phone contract, lenders and service providers will often check your credit report before making a decision. Despite this, many people only think about their credit score when they need to borrow money, rather than actively managing it in advance.
A good credit score can help you access better borrowing terms, lower interest rates, and higher credit limits. A lower score, on the other hand, can make it harder to get approved for credit or lead to higher costs when borrowing. Even if you don’t plan to take out credit soon, maintaining a strong credit history is a smart financial move that can benefit you in the future.
Understanding what affects your credit score and how you can improve it will help you stay in control of your financial wellbeing.
What Is a Credit Score?
A credit score is a number that reflects how reliable you are when it comes to borrowing and repaying money. Lenders use this score to assess how risky it would be to lend to you.
Your credit score is based on your credit report, which includes details about your past borrowing, repayments, and financial behaviour. Every time you apply for credit—whether it’s a mortgage, a personal loan, or even car finance—lenders check your credit report to help decide whether to approve your application.
In the UK, different credit reference agencies calculate your score using their own methods, meaning your score may vary slightly depending on which agency you check. However, they all base their calculations on similar financial factors.
Why Your Credit Score Matters
A high credit score can make it easier to get approved for credit and secure better interest rates. If you have a good credit history, lenders are more likely to offer you a mortgage with a lower interest rate, which could save you thousands of pounds over the lifetime of your loan. Similarly, credit cards with lower interest rates and better perks are typically only available to those with strong credit scores.
A lower credit score can result in higher borrowing costs or even lead to being rejected for credit altogether. Some landlords and utility providers also check credit reports when assessing applications, meaning a poor credit score could affect your ability to rent a home or set up household bills.
If you own property that you rent out, missed mortgage payments or arrears on that property can also negatively affect your personal credit score, even if the financial issue is related to a rental property rather than your own home.
What Affects Your Credit Score?
There are several key factors that influence your credit score. Below is a list of the main things to consider, but keep in mind that there may be other factors specific to your financial situation. If you’re unsure about your credit health or need tailored advice, consulting a financial adviser may be a good option.
Payment History
Your history of making payments on time is one of the biggest factors in your credit score. Missing or making late payments on credit cards, loans, or even mobile phone contracts can cause a drop in your score.
Lenders want to see that you can manage your debts responsibly. Even one missed payment can stay on your credit report for six years, although its impact reduces over time. If you regularly miss payments, lenders may consider you a higher risk, which could affect your ability to borrow in the future.
Setting up direct debits for at least the minimum payments on your accounts can help ensure you never miss a payment.
Credit Utilisation
This refers to how much of your available credit you are using. If you consistently use a high percentage of your available credit, lenders may think you rely too much on borrowing, which can lower your score.
Keeping your credit utilisation below 30% of your total limit is recommended. For example, if your credit card has a limit of £5,000, try to keep your balance below £1,500 where possible. Paying down existing balances and spreading spending across multiple accounts rather than maxing out a single card can help keep your credit utilisation low.
Length of Credit History
Lenders prefer to see a long and stable credit history, as it gives them more information about how you manage your finances. If you close old accounts, you may lose valuable history that was contributing to your score.
If you have older accounts with no annual fees, it may be worth keeping them open rather than closing them. This can help maintain a longer credit history and contribute positively to your score.
Types of Credit Accounts
Having a mix of different types of credit—such as credit cards, loans, and mobile phone contracts—can demonstrate that you can manage multiple forms of credit responsibly. However, this doesn’t mean you should take out credit unnecessarily, as having too much credit or excessive debt can harm your score.
Lenders like to see that you can handle different kinds of credit commitments, but it’s important to only borrow what you need and can afford to repay.
Number of Credit Applications
Every time you apply for credit, a hard search is recorded on your credit report. Too many applications in a short period can lower your score, as it may indicate financial distress.
If you’re planning to apply for a mortgage or another form of credit, it’s best to space out applications and only apply when necessary. Some lenders offer tools that allow you to check your likelihood of approval before applying, without affecting your score.
Being on the Electoral Roll
Being registered to vote at your current address can improve your credit score. Lenders use the electoral roll to verify your identity and home address. If you’re not registered, it could make it harder for lenders to confirm your details, which may lower your score.
Registering to vote is free and can be done online through the government website. Even if you don’t intend to vote, being on the electoral roll is a simple way to help improve your creditworthiness.
Financial Associations with Others
If you have a joint mortgage, loan, or bank account with someone else, their financial behaviour can affect your credit score. If they have a poor credit history or miss payments, it could impact your ability to get credit in the future.
If you no longer share finances with someone, you can ask credit agencies to remove financial links between you. This ensures that their financial history no longer affects your credit file.
Impact of Bad Credit on Rental Properties You Own
If you own a rental property and have a mortgage on it, missed payments or arrears can negatively impact your personal credit score. Even though it is a separate property from your home, lenders still see it as a financial responsibility.
Keeping rental income separate from personal finances and maintaining a buffer to cover unexpected costs, such as a tenant moving out, can help avoid financial difficulties that might affect your credit score.
How Long Does It Take to Improve a Credit Score?
Credit scores don’t change overnight, but positive financial habits can lead to improvements over time. If you’ve missed payments in the past, their impact lessens as you build a history of on-time payments.
Regularly paying bills on time, reducing your credit utilisation, and avoiding multiple applications for credit in a short period can help you build a stronger credit profile. If you’re planning to apply for a mortgage, loan, or credit card, improving your score several months in advance can help you secure better deals.
Final Thoughts
Managing your credit score isn’t something to think about only when you need to borrow money. Keeping track of your credit history, making timely payments, and using credit responsibly can put you in a stronger position for future financial needs.
While the factors listed above are some of the main things that influence your credit score, there may be other considerations depending on your financial situation. If you’re unsure about your credit health or need specific guidance, speaking to a financial adviser can provide tailored advice based on your circumstances.
Maintaining a strong credit score takes ongoing effort, but the benefits—such as lower borrowing costs and better financial opportunities—make it well worth it.
For more tips and guidance related to Personal Finance, register here to subscribe to our newsletter and be sure to check out our YouTube channel. Together, we’ll help you achieve your goals, one step at a time.