What affects my credit score?

If you’ve applied for financial services in the UK and been declined, the likely cause of this is an insufficient credit score. If so, you will want to know what factors determine your credit score and how can you improve it.

A credit score is an indicator of creditworthiness. In other words, banks and lenders look at how an individual has previously handled credit (credit history) as a measure of how reliable this person is likely to be when repaying borrowed credit. For more on this, see our previous blog: ‘What is a credit score?’

Is my credit score good?

In the UK, there are three main credit reference agencies (CRAs). These are Experian, Equifax, and TransUnion. Each of these agencies has its own method of assessment and grading system, so all three agencies would return different credit scores. 

Firstly, it’s useful to see what a good credit score can look like in each of their terms. For Experian, a good credit score is upwards of 881, whereas for Equifax it’s >531 and for TransUnion it’s a score of 604 and beyond. A poor credit score in Experian terms looks like 720 and below, 438 or less for Equifax, and 565> in TransUnion terms.

The average credit score in the UK is 644 on the Equifax scale as of April 2023. Credit scores generally increase with age. This is because as you get older, CRAs have a larger timeframe’s worth of credit utilisation data. In other words, there’s more evidence that you use credit responsibly. It is generally seen that 18-25 years olds average at a 447 credit score, whereas those aged 65+ average at 839.

It can be disheartening to achieve a lower credit score from a particular CRA when another has returned a higher value. But don’t worry – having a poor credit score doesn’t automatically mean that you’ll be denied a mortgage, loan or financial product as lenders have their own decision-making methods.  Unfortunately, a lower credit score often means lenders will offer services at a higher rate. This is because they view you as a high-risk borrower, however unjust this may feel.

What can I do to protect my credit score?

It is important to remember that your credit score is not who you are, so try not to feel too down about it. Luckily, there are some measures you can take to protect your credit score:

1. Spread out your credit applications - Aim for no more than one hard credit check every six months. This occurs when a financial institution reviews your credit report as part of the credit application process. Soft checks don’t leave a mark on your profile, however. 
2. Keep on top of your payments - Missed payments can drag down your score and leave a mark on your credit history. Lenders want to see that you’re reliable.
3. Aim to keep your debts low but available credit high - Whilst you may have a lot of credit available to you, lenders like to see low credit utilization (i.e., spending only a little of your available limit on your credit card). Ideally, aim to keep your credit utilisation below 30% of your total credit limit. This shows you’re cautious and can reliably repay debt.
4. Keep your oldest card going - Your oldest card shows you’ve been using credit well, so if you need to close an account, make sure it’s a more recent one. You want to provide lenders with as much evidence as possible that you’re a responsible borrower.
5. Avoid opening unnecessary credit accounts - Opening multiple credit accounts within a short period can raise concerns for lenders and negatively impact your credit score. Only apply for credit when necessary and avoid opening superfluous accounts. 
6. Build up your credit history over a long time - A credit history (hence the name) is most compelling when built up over an extended period. We earlier spoke about low credit utilisation, but it is also equally as important to make sure that you do use that credit. You might think that no credit use stands you in good favour – but it is quite the opposite. Lenders want to see evidence of how you use credit, so if you’ve never used it or have only used it recently, it’s going to be very difficult for them to effectively make a judgement. Over 5 million people in the UK are credit invisible, meaning they have no credit history.

Maintaining your credit score using these tips will help you to enhance your future financial opportunities. 

Having a poor credit score might feel like the end of the world, but it is possible to rebuild it in time. A great way to kickstart this process is to apply for a BuildMyCreditScore debit card connected to your trusted bank account. It allows you to build your credit score easily, one small purchase at a time.

It’s important to make it known to lenders that you’re a reliable borrower so that you’re not charged high interest rates or denied financial services.