Advice and Tips

What Factors Affect Your Credit Score?

Advice and Tips // 31 March 2016

Lenders will look at various different factors and circumstances when reviewing applications for finance. One of these is your credit score. This takes in to account various factors that will assess the risk you pose for lenders. Quite simply, a bad credit score causes greater risk to the company and so higher APRs are charged. You may be wondering exactly what factors can affect your credit score and we have looked at some of them below.

Payment History – Your payment history is one of the most important parts of your credit score. By looking at your past payments it is possible to see whether they were made on time and if not, how late the payments were. This is a large part of judging whether you can be relied upon to pay back any finance.

Past Debts And Bankruptcies – Looking back through your history will also highlight any bankruptcies or unpaid debts. These will stay on your record for a minimum of 6 years and will adversely affect your credit score. The more unpaid debts you have, the less reliable you can seem to lenders.

Money Owed – If you currently owe money, this can affect you differently depending on the amounts and circumstances. Owing large amounts may not reflect on you positively, but, owing a relatively small amount can be a positive as it allows companies the ability to see that you are capable of borrowing and repaying money.

Credit History Length– The length of time you have been using credit also comes in as a factor for your credit score. If you have a long and clean credit history this can be more beneficial than a short history as it gives evidence over time that you have the ability to make necessary payments on time. A short history is not necessarily bad though, as long as it shows confirmation of payments being made.

New Accounts – Another way your risk will be assessed is by checking how many accounts you have tried to open recently for credit. Companies will also check whether they were successful. If you have made applications to open new accounts recently this can suggest to companies that you are looking to borrow more money. This in turn can lead them to assume that you are a greater risk.

Credit Account Types – There are many different types of credit. Credit cards, mortgages, personal loans and car finance are just some of the different types of account available but there are also many more. Generally it is seen as a positive if you have varying accounts that are kept in order. This can show you have a good understanding of credit and are able to be responsible when managing different accounts. However, if you have a large array of accounts and are struggling to keep up with payments this can be a red flag for lenders.

Registering To Vote – Being on the electoral register is not the most important factor but it can help you when applying for credit. This has nothing to do with actual voting, it simply gives any lenders a proof of your address. This proof can just give you an additional boost in being accepted for applications.

If you are struggling with any of these factors it may be affecting your credit score negatively. Fortunately, there are ways to improve your credit score to give you an advantage when applying for credit.