What affects your credit score?

Both your credit score and your credit report are crucial to your overall financial wellbeing. Generally, potential creditors will look to your report as an indicator of your financial health. And will, therefore, base a lot of their decisions regarding credit on your report.

This is why you mustn’t neglect your financial obligations. Instead, you should be striving to improve your finances in all aspects. Which will allow you both the freedom and choice to get the most out of your money as your current financial situation can hurt your ability to borrow different types of credit such as mortgages and finance in the future.

But other than avoiding late payments, County Court Judgements (CCJ) or accumulating vast amounts of debt in your name, what are the other things you can do to maintain a positive credit report? And more to the point, what factors might be affecting your credit score?

What affects your credit score?

1. Your utility bills

Although energy and water providers don’t disclose your payments directly to credit reference agencies, creditors may review your utility payments when deciding whether to approve your application or not.

While utility bills are not technically a loan, they still can affect your score if you do not pay your bills on time, just in the same way that late payments on a credit card would also be a potential red flag.

Why utility bills, in particular?

Utility companies are far more diligent in reporting offending accounts than other companies, which is why it’s essential to keep up a good rapport and ensure that you keep up with your repayments.

Once you have been reported for an outstanding payment or payments, then your account is likely to be handed over to a collection agency to collect the amount owed. Contact with a collection agency will be noted on your report, bringing down your rating and lasting up to 6 years.

2. Several credit applications close together

In desperation, when applying for credit, you may be tempted to make a few applications in a short space of time to better your chances of getting approved for credit cards and loans. However, this can actually do more harm than good.

Instead, having multiple applications for credit close together can cause your credit score to drop drastically, as every hard search enquiry on your report will leave an entry on your report for other creditors to see.

Why is this a red flag to lenders?

A hard search enquiry is carried out every time you apply for credit, such as a mortgage, loan or car finance. If you accumulate too many of these checks, they can affect your credit score as credit reference agencies and the lender may assume that you are desperate to seek finance for reasons unbeknown to them.

To avoid many hard searches on your credit report, you can always use an eligibility checker before submitting your application. Doing this can be a great indication of whether you’re likely to be approved, what interest rates and credit limits you are likely to receive for things such as credit cards and personal loans.

However, it is worth noting that some eligibility checkers are only an indication of your probability to be accepted based on the information you have provided, and are not a definite answer.

3. Your unpaid parking tickets and traffic offences

While this one may be a surprise for some, many don’t recognise that parking and traffic offence tickets are issued on your report, until they check their record. However, it is worth noting that a speeding fine or parking violation will only have an impact on your credit score if you have been taken to court for your failure to repay your fine.

Nevertheless, if a court needs to settle your case, then you won’t have to worry about it appearing on your credit report. Instead, you’ll only be reported to one of the credit reference agencies if you lose your case or fail to make a payment within 30 days.

Driving offences can be detrimental to your credit, so do your best to avoid getting any fines and settle any debts as soon as you receive them.

4. Avoiding using credit entirely

Although ensuring that you never borrow credit can be a fool-proof way of avoiding debts, avoiding using credit ultimately won’t guarantee that you have a perfect credit score. Instead, you’ll have something that is called a ‘thin file’ credit report, which in some cases can be just as limiting as having a poor payment history.

Why is having a thin file credit report bad?

Having a thin file means that lenders don’t have any indication of how responsible you’ll be when it comes to borrowing money and whether you’re likely to make repayments. Therefore you must take out credit and build up a good credit score by ensuring that you:

• Don’t max out your credit limits by going over your overdraft or credit card limit.
• Repay your minimum monthly repayments, on time and in full.

What should I do if I’ve never taken out credit?

If you’ve never applied for credit, then you may want to consider using either a credit builder such as an Aqua card.

An Aqua card works just like any other credit card, except that the APR encompasses the risks associated with lending to those who have not taken out credit in the past, or who have a bad credit history. By using your aqua credit card responsibly, you actively build your credit, and with every year you use it, you can further increase your credit limit.

5. Closing credit accounts

Your past credit history, including how long you’ve held your credit accounts for and when you last used those accounts, contributes to around 15% of your overall score. So if you’re considering closing a credit account, then you may want to reconsider.

Closing a credit card that you’ve held can have an undesirable effect on your credit as you’ll be removing a huge chunk of your credit history. Instead, you may want to consider closing a card that you’ve held for a shorter time.

6. Not being registered to vote

If you’re not already aware, the electoral register is a record of all of those residing in the UK who are registered to vote in public elections. To determine what borough or district you fall into, you need to provide the following information, including:

• Your name
• Date of birth
• Current residential address
• National insurance number

Being on the electoral register is essential for boosting your credit score, and in many cases can give your credit history a well-needed boost.

Why would this affect my credit score?

Being registered to vote is just one of the ways that lenders can confirm your identity and check that all the details you have supplied on your credit application are correct.

Checking that you’re on the electoral register is a precautionary measure that lenders carry out to rule out any chances of fraud or mistaken identity, which can pose huge problems.

If your details do not match your credit application, then your credit application could be rejected, which is why it is vital to ensure that all details provided are correct.

7. Not paying your debts

This is one of the most obvious reasons why your credit score may be low, but it’s also an important factor. If you can’t demonstrate to potential lenders that you can borrow, use and repay your credit card bill or repayments on any instalment loans negative entries will be entered on your report which will have a negative impact on your score.

However, it must be noted that while missing or late payments will stay on your credit report for 6 years, the longer these have been on your report, the less impact they will have.

8. Maxing out your credit

Putting everything on your credit card might seem like a great idea at the time - however, even if you have the money to repay your credit card bill in full, you should avoid maximising your credit limit as it will impact your credit rating.

Why is exceeding my credit limit bad for my credit score?

Your credit utilization ratio is important for a good credit rating, meaning that staying within around 20 - 30% of your credit limit will ensure your credit utilisation ratio is low, your score isn’t affected and will look great to potential creditors as it demonstrates responsible use of credit.

What doesn’t affect your credit score?

Since we’re uncovering some information about credit scores here, we thought that it might be beneficial to debunk a few myths about credit while we’re here.

What does and doesn’t affect your credit can sometimes be a bit confusing, so we’re here to settle some questions by answering what doesn’t affect your credit score:

• Your job
• How much you earn
• How much is in your bank account
• How much savings you have
• Your outstanding student loan
• Your age

What are your options if you’ve been refused credit?

If you’ve been refused credit in the past and are wary of having too many rejected applications having a negative impact on your report, then you may be wondering what your options are.

If you’re already aware that your credit requires fixing, then you may wish to consider products and services which are designed specifically for repairing and building credit.

Alternatively, if you require financial assistance, then there are still plenty of options available to you that don’t need a credit check to be performed, such as open banking.

Open banking allows third parties to securely view your financial information such as your income, savings and transactions, without having the need to perform a credit check.

At Fablious, we specialise in finding alternative finance for those who may have been refused credit in the past due to things such as a thin file or bad credit report. We use open banking as a method of matching our customers with personalised deals on the products and solutions that they need.

If you don’t want to miss out on the latest personalised deals that Fablious has to offer, you can sign up today completely free!

What you can take away

Trying to get to grips with your credit report can be overwhelming, it can seem like there are so many different factors that contribute to it that you might find yourself struggling to keep up.

However, by doing a little bit of research and prioritising your score, you can not only expand your options but also set yourself on the path to exceptional finances.

To begin your journey to better credit, why not start your journey by checking your credit score and report for free with Experian.

Why choose Fablious?

At Fablious, we understand that the need for credit doesn’t go away with rejected credit applications. Instead, we’re dedicated to ensuring that customers with thin credit files and poor credit histories are still able to get the financial help they need, by seeking alternative routes.

We have information and comparisons on a vast array of different products and solutions ranging from buy now pay later, deposit free renting, to debt management and saving money. There is all manner of products to get you started on your journey to feeling Fablious about your finances.

You can even browse our selection of some of the best deals by visiting our solutions page for more products.

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