Which factors affect your credit score?

Having a good credit score can give you access to a range of financial benefits. You can get offered higher credit limits, lower interest rates and have more negotiation power when it comes to finance, or credit offered. But it’s important to also know which factors affect your credit score and the negative implications they may have. If you’re looking to take out a new loan or apply for credit, you could consider the below pointers before you put your application in!

Payment history

One of the most important factors that affect your credit score is your ability to meet repayment deadlines. When taking out something like car finance you agree to make monthly repayments till the end of agreed term with interest. Meeting your car finance payments each month can actually help to increase your credit score as it shows evidence that you can make repayments. If you fail to meet your repayments on any form of credit, it is recorded on your credit file and your score can take a massive hit. Having evidence on your credit file that you don’t meet your repayments on time can also affect your ability to get credit in the future too.

Your credit usage

Your credit score is calculated by the amount of credit you have available and how you use it. Your credit utilisation is key. You should try to keep your debt levels under 50%. For example, if you have a credit card and your credit limit is £4000, you should only use around £2000 and below. This shows to lenders that you are responsible with your money. If you have high levels of existing debt, you should try to clear it before applying for more. Potential lenders may thing you can’t handle any more credit.

Length of credit history

Finance lenders like to see stability and you can use old accounts to your advantage. Having accounts which you have held for a number of years can help to verify who you are and also that you’ve been trusted by another lender for a number of years! If you have a high number of new credit accounts, it is likely to reduce your credit score as it indicates that you are desperate for credit.

Public records

Public records such as entering into an IVA, having defaults, being issued a Count Court Judgement (CCJ) or declaring bankruptcy are recorded on your credit file. All of which have a serious negative impact on your credit score. Most of these will stay on your credit file for 6 years, even if you have settled it or paid back the money you owe. Lenders will be able to see that you have not made your repayments in the past and see you as high risk.

Number of applications

Your credit file will show all the applications you make for finance or credit by using a hard search credit check. This allows lenders to take an in depth look at your credit file. Making multiple hard search enquiries in a short space of time can negatively impact your credit score. If you want to shop around for car loans you could consider a car finance broker. A broker applies with different lenders on your behalf and reduces the risk of harming your credit score.

The types of credit you have

Lenders like to see that that you can handle different types of credit. Your credit score can increase if you have a mix of different credit options. For example, having a mortgage, mobile phone contract and credit card. Remember, you can only increase your credit score if you make your payments on time and in full.

Incorrect personal information

When you check your credit file you should make sure all you information is accurate and up to date. Mistakes on your credit file do happen and they can have a negative impact on your credit score. You should check all your personal information is up to date and you can help verify your address by registering on the UK electoral roll. If your credit accounts have a misspelt name or is misspelt on your credit file, you could be missing out on the positive impact that they have on your credit file. you can contact the credit referencing agency who provided your credit report to fix any mistakes or inaccuracies.

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