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In very basic terms, your credit score is a number, ranging between 0 and 999. It is an indication of how reliable you have been in the past when paying back money you have borrowed from a bank or on something like a credit card. If your credit score is high, then you stand a good chance of being approved if you are thinking of moving house and taking out a new mortgage or applying for finance for a new kitchen or large item of furniture. On the other hand, a low credit score can mean your options are limited.

Credit scores are generated by the major credit reference agencies, using what they already know about your financial history. You can get access to this information too. When you fill in an application to borrow money, the bank will look at your credit score when deciding if you’re likely to pay it back or not. Your credit score may also affect how much money the bank or other financial institution will be prepared to lend you.

Factors Impacting Your Credit Score

Your credit score is like your financial CV. If you’ve never missed a payment on a credit card and never defaulted on a loan, then this will affect your credit score in a positive way. If you have a chequered financial past, with defaults or County Court Judgements (CCJs), then this will make your credit score lower.

People who have never borrowed money and never had a credit card might find that their score is low, purely because there is no track record of them being able to borrow money and pay it back regularly.

Credit scores are calculated by looking at the different factors on your credit file. This is information recorded in a digital database, which will show all of your credit agreements such as mortgage, personal loan or credit cards. This includes finance you have taken out with someone else. The database will also show payments and will highlight any missed payments over the last six years. The score also looks at public records, mainly the electoral roll and the list of CCJs. Your credit file contains purely borrowing information, and nothing about your job, salary, spending habits or medical information.

Who Holds This Information About Me?

Banks and other lenders don’t have their own information about you, apart from any accounts you have with them. All lenders use one of the main UK credit reference agencies to help them make a decision. The three main agencies in the UK are Equifax, Experian, and TransUnion. They provide the information about you but don’t make decisions or provide recommendations to the lender. Individuals have the right to request to see the information which any of the credit referencing agencies have about them. If you come across a mistake on your record, then you have the right to ask the credit referencing agency to correct it.

What Can I Do to Influence My Score?

If you have found that you are struggling to get finance and think your credit record might be to blame, then there is lots you can do to get the numbers upwards. Firstly, get your finances in order and pay off any outstanding sums, making a plan not to get behind on payments again. Check you are listed on the electoral roll and request your credit file to make sure there are no obvious mistakes listed. If lack of a track record is the problem, think about taking out a credit card with a small limit, and paying it off in full every month.

If you are applying for credit, there’s usually a form to fill in. Lenders will look at this information when they are deciding whether or not to lend you money, so it’s important to take your time and give them the best first impression possible, without lying of course. Many banks and building societies use not only credit scoring agencies but fraud agencies too, which use software to pick up discrepancies on forms which could indicate identity theft or fraud. Check the form over for typos – have you included your postcode and given your annual not monthly salary, for example?

It’s a common misconception that the bank knows everything about us and can see the details of every account we have but this isn’t really the case. If you are applying for a loan or credit card with a specific lender, they will be able to access:

• Your track record with that lender – they will be able to access their own account data about you, showing if you have made payments on time in the past.
• Fraud information – companies in the financial services industry share information between themselves about customers making fraudulent applications.

Credit Referencing Agencies

The three big credit reference agencies in the UK are Experian Equifax, and TransUnion. All lenders will use at least one, possibly more than one. Agencies compile information from the electoral roll, and will look at court records to see who has been declared bankrupt or been given judgements against them.

Agencies can also access data from other lenders, showing whether you have applied for credit through other lenders, and showing who you might be linked to financially through having a joint account, for example. They also have information from gas and electricity bill, so being in arrears with your energy provider could go against you too. Credit referencing is a huge factor in whether you will be successful when applying for the loan or not. Credit referencing agencies just collate the information given to them and pass it on to the lenders; they don’t make decisions. Agencies handle a huge volume of information and sometimes get things wrong. If you’ve been turned down and can’t understand why, the first step is to request your file from the agency to check it over for any mistakes.

What Lenders Don’t Know About You

There are lots of myths around about what sort of information is actually on your credit file. It’s important to bear in mind that your credit file is purely your financial history and nothing more. Despite the conspiracy theories which you might hear or read about online, credit referencing agencies and lenders do not know:

• Your religion, race or ethnic background – because these facts about you are not recorded on your credit file.
• How much you earn – credit agencies don’t have access to HMRC, and can’t see how much you’re earning or paying in tax. You might be asked to state your salary on an application form though, especially for a mortgage or similar.
• Savings – although a financial product, details about money you hold in savings accounts won’t appear on a credit referencing report because you’re not borrowing anything. If you do apply for a new savings account, there will still be checks done to establish your identity to comply with money laundering law.
• Medical information – credit referencing agencies won’t have any access to your medical records, or details of any tests you are waiting to have.
• Criminal records – no credit referencing agency will have any information about any crimes you have committed in the past, unless of course, those crimes involved making fraudulent insurance claims or identity theft to apply for credit cards in someone else’s name.

One of the main tips you’ll find on any site giving advice on credit scores is to make sure you are registered to vote. But why is this so important? Why are the banks or financial institutions interested in whether we pop into the polling station to put our X on a ballot paper?

What is the Electoral Roll?

The Electoral Roll in the UK is a list of people who are eligible to vote. Whether those people actually vote or not doesn’t really matter. It’s more about having their names on the public register which links them to their home address. If lenders have no way of confirming that you live where you say you do, then they are unlikely to want to lend you any money. Even if a lender is still inclined to offer you an account, they will want to see other proof of your address and identity. Providing this extra paperwork all takes time, so being on the electoral roll just makes everything quicker and more efficient.

Other Reasons to Be on the Electoral Roll

Being on the electoral register definitely makes things easier when applying for credit, but there are other reasons why you might wish to be on the electoral register too. Many other public services need to confirm your identity too, and the electoral roll is often checked when you apply for a passport, driving licence or government benefits. Many jobs in the financial sector involve a degree of background checking before you start work and confirming that you live at the address you have given is a key aspect of this.

How Do I Register to Vote?

Even if you have no interest in politics or voting, it’s important to be on the list of voters for all of the reasons laid out above. How you register will depend on where in the UK you live. If you are a resident of England, Wales, or Scotland, then you can register to vote online. Every year, the local council will also send a letter to the house, asking for confirmation of voters registered at that address. Voters in Northern Ireland have to complete a voting registration form, which can be done online.

Students who are living away from home in Halls often find it is better to register at a permanent address such as their parents’ house. Your credit score can be adversely affected if lenders see lots of addresses over a short period of time, so rather than registering and de-registering each year, just stick with one main address.

Once you have registered to vote, it will take some time for your details to be updated on the databases held by the main credit referencing agencies. Usually, this happens within 30 days and if you’re in the habit of checking your credit score regularly, you should see your number increase when the database is updated. If, however you wait for the letter from the council to arrive in the post to register as a voter, it might take longer for your file to be updated, as councils send all the data about newly registered voters through to the council in one batch after the process has completed.

If you are not eligible to vote in the UK because you are a citizen of another country, then there are other ways round this. Credit agencies are well aware of the issue and can add a note to your file stating the reason why you are not on the electoral roll. This should make getting credit easier in those circumstances.

Credit scores influence our financial lives, determining which bank accounts we can open, and which credit cards we might get accepted for when we apply. But not everyone has an amazing credit score, with every option available to them. If you don’t have a decent credit score, then you might be limited as to which financial product you will be accepted for.

Bad credit scores are more commonly caused by defaults in your past which will show up on your credit file when you apply for a new credit card or loan. If you’ve missed payments or failed to pay altogether, then the banks will perceive you as a bad risk and won’t be keen to lend you any more money. The other main group of people who find it hard to access credit are young people, or just people who have left no footprint on the credit records in the past. From the bank’s point of view, how do they assess your likelihood to pay money back when you have no track record? Being in this position is frustrating, but there are things you can do to improve your record, making you more likely to be accepted in the future.

Credit-Building Cards

There are many credit cards on the market which are aimed at people who have either had issues with making payments in the past, or who have no credit record at all. A quick search on Google will display a list of products, offered by a wide range of providers. A good starting point is a soft search, which will indicate how likely you are to be approved for a card before making a firm application. Making too many applications will damage your history even further, so only apply for products which you stand a very good chance of being accepted for. You also have a better chance of being accepted for a card with a lower credit limit, so if you have the option to ask for a set limit, choose £500 or £1000 as a starting point.

Once you are approved for your credit card, then the key is to manage your spending carefully. This is all about showing your bank that you can be trusted to use the card responsibly and not get yourself into trouble with payments. Spend a small amount of between £50 or £100 every month on your card and settle the bill immediately. Even better, set up a direct debit from your bank account to make the payment automatically. Doing this will help you build up a track record with your credit card provider and should boost your credit score too. Don’t expect to see instant results though. It could take between 9 months and a year before you see your credit score start to climb. You should then be in a stronger position to apply for a different card, or a loan or mortgage – always doing a soft search first to check your chances of being accepted.

Other Ways of Boosting Your Credit Score

Getting a basic credit card is probably the best way of increasing your credit score but there are other ways too. Make sure you are on the electoral roll at the address where you are living and apply to see your full credit file to check there are no errors on it. Other actions such as being named on utility bills or having a mobile phone contract in your name can help too. Just make sure you have a process in place for making sure payments are made every month, in full.

Recent figures released by one of the UK’s largest credit referencing agencies show that the average British credit score has increased in 2021, despite the pandemic causing chaos with the finances of many. Credit scores from the major agencies in the UK are on a scale of 0 being the worst through to 999 being the best achievable. In 2021, the average credit score throughout the UK was 797, up from 792 in 2020 and 776 in 2019.

Emergency Payment Freeze

At the start of the Covid-19 pandemic in 2020, many banks and other financial institutions introduced payment freezes or mortgage holidays, to help customers manage on reduced furlough payments, or those who faced losing their jobs entirely in the first lockdown. As a consequence, fewer borrowers got into difficulties making repayments on their loans. With hospitality and non-essential retail closed, many consumers also found that their spending patterns changed and that reduced commuting costs and additional costs of travelling to work meant they could cut their outgoings and reduce debt as a consequence.

Regional and Age Differences

Experian also looked at how the average UK credit score varies across the country. Perhaps unsurprisingly, the people with the highest overall average credit score are found in the city of London area, closely followed by the Isles of Scilly and Wokingham in Surrey. At the other end of the scale, the areas with the lowest average scores are Blackpool, Blaenau Gwent in South Wales, and Hull.

There is also a wide gulf between average credit scores in each age group. People over 55 years of age have the highest average scores. 18–20-year-olds perhaps surprisingly score more highly than those in their 20s, possibly because people in this bracket are more likely to be living at home, without expensive loan agreements or mortgage payments. People in the 31-35 group have the lowest average credit rating, as this is the age group most likely to take loans or a new mortgage. Experian have put together an interactive map which helps you look at your own score compared with other people of the same age, or same geographic location.

Improving Your Credit Rating

Although the industry has welcomed news of the average credit score rising year on year, experts point out that there are many steps which individuals can take to influence their own credit rating. The first step is setting up a free account with one of the many sites which helps you firstly understand the credit scoring system, and lets you track your own score over time. Keeping your credit score at a healthy level will cut stress in the long run as it will make it easier to get a new loan or mortgage agreement without the worry about having your application declined. If you identify that your score is on the low side, then start to take some steps now to improve matters before applying for a new mortgage or car loan. This could be something as simple as making sure you are registered to vote at your home address and paying off your credit card in full each month.

What Is a “Good” Credit Score Anyway?

Each lender makes its own decisions about how to lend, and a poor credit score doesn’t mean you cannot access credit. However, the industry classes scores as follows:

Very Poor	0-560
Poor	561-720
Fair	721-880
Good	881-960
Excellent	961-999

A perfect score may be unrealistic for many, but for most of us, there are things we can do to improve how the banks and building societies perceive us.

Getting knocked back for credit is inconvenient and potentially embarrassing too. Whether you are accepted for a new credit card or mortgage depends in a large part on your credit score. If your credit score could be better, then here are our top tips about steps you can take to improve matters.

1 – Get your credit report

Sign up for one of the many apps which let you look at your credit score and understand how it is calculated and track how it changes over time.

2 – Understand what lenders are looking for

Obviously in general terms, lenders want to deal with people who are going to pay them back. But some lenders specialise in different segments of the market, and you can maximise your chances of success by choosing to apply to a company which markets itself to people just like you.

3 – Get on the electoral roll

One of the first checks any lender does is to verify your address details. If you’re not registered to vote they are unable to do this and are very likely to reject you. You don’t need to wait for an upcoming election to register; it can be done free of charge at any time through the government website.

4 – Before you apply, check

Rather than crossing your fingers and hoping for the best, always look at your credit score before you apply for a loan or a mortgage. Make sure there are no glaring errors and if there are, ask to have them corrected.

5 – Always make payments on time

Defaults or missed payments are the most damaging thing you can do to your credit score, with missed payments in the last year having the worst effect. Consider setting up a direct debit to make payments automatically if you’re the kind of person who forgets. If you’re in financial trouble, speak to your lender and try to negotiate reduced payments.

6 – Look at who you are financially linked to

If you have a joint account or joint utility bills with partners or flatmates with poor credit scores, this could affect your score too. Keep your finances very separate until the other parties sort themselves out. If you’ve split up from a partner, take steps to separate your finances and tell the credit reference agencies that you have done so.

7 – Soft searches and eligibility calculators

Every time you apply for credit and get rejected; this decreases your credit score a bit more. The lenders perceive this as desperation to access credit. Many sites will offer a “soft search” which means they will estimate your chances of being accepted without a hard application which damages your score.

8 – Use a credit card to build your credit history

Many young people struggle to get credit because they have nothing on their file to help the banks assess how risky they are. Get a basic credit card with a low limit and spend just £50 or £100 on it each month, and pay it off in full. You won’t pay any interest and are proving that you’re a good risk. Payday loans companies will say they can do the same thing, but these are seen as an example of poor money-management from the finance industry.

9 – Time your applications

If you know you’re likely to switch job, take time off to have a baby or have another change in circumstances, make your applications before that change happens.

10 – Cancel cards you’re not using

If you have store cards you are not using, cancel them rather than leaving the account open without using it. Having access to lots of credit, even if you are not using it, is seen negatively.

We’ve all been in the situation of living with a nightmare flatmate who parties all night and never chips in their share of the gas bill. Eventually we move on and think about getting a place of our own. But can the financial situation of that dodgy flatmate who never paid their bills affect your own credit score in the future? The answer isn’t as straightforward as you might think.

Tenants and Individual Credit Checks

Credit checks are made against individuals rather than against an address. If you are sharing a house with someone who is having issues managing their money then this shouldn’t impact on you, whatever the relationship is between you. Your credit score is based on your finances only and looks at how reliable you are at making payments on your loans and credit cards, or in keeping up to date with paying the electricity bill. Therefore, in an average house share situation where everyone manages their finances separately, a stream of red letters coming through the door for someone in the next room shouldn’t affect you.

Although the credit referencing agencies are by and large reputable and trustworthy, mistakes do happen. It’s always worth requesting a copy of your full credit report from the three main agencies in the UK which are TransUnion (previously CallCredit), Equifax, and Experian. Check through the information they have about you carefully to make sure there is nothing on there which should have been on someone else’s file, for example. If there are any inaccuracies, the agencies will correct the errors if you can prove their mistake.

If things get really bad with your housemates and the bailiffs come calling looking for payment towards a debt, then don’t worry. Although it’s never pleasant to have people knocking at your door demanding payment, the bailiffs can’t take anything of yours to put towards someone else’s debt. It’s always a good idea to sit down periodically with housemates and have a frank discussion about finances and how to best manage paying the house costs.

Joint Accounts with Housemates

There is one scenario in which a flatmate’s poor money management could affect yours and this is if you have a joint account with them. It might seem sensible to set up a joint “house account” to cover bills, or for expenses like food and rent. But being named on a joint account with someone creates a financial link between you and the other people on the account. If that other person then gets into financial difficulties, then it could impact on your credit record too. This is perhaps less of an issue when it comes to a flatmate scenario, but it’s something to think about if you’re moving in with a partner and you haven’t had joint finances in the past.

Perhaps the best advice for anyone in a flat share situation is to keep finances totally separate. The difficulty comes with bills like council tax or electricity, where one person has to be named on the bill and take responsibility for making payments. The downside of being the person named on the bill is that you are the one who must make the payment and chase your housemates for their contribution. On the other hand, being the one in charge of making the payments should have a positive effect on your own credit rating.

When you finally move out of a flat share, always contact the gas or electricity company to get your name removed from the account. If you don’t do this and the remaining sharers don’t make the payments, then the default will go onto your record and the company will chase you for their money.

Increasingly, financial services companies are offering the option to conduct a soft search or “smart search” to establish your chances of being approved for a loan or credit card. If you’re not sure what a soft search is, then you’re not alone. Here’s our ultimate guide to soft searches for credit, and the reasons why these could be important for you.

Credit Score

Perhaps the most important thing about soft or smart searches is that they will not leave any mark on your credit file, unlike a “hard search” which is an actual application for credit. If you are turned down by one lender, this can make another lender less likely to accept you too. The more searches you do, and the more often you are knocked back, the harder it gets to obtain credit. Even if your credit score is healthy, a soft search could stop you applying for products which just aren’t designed for people like you.

Most of us when comparing financial services products such as credit cards or mortgages default to the provider with the lowers interest rates. The problem is that those products which offer a very low interest rate are generally only available to people who have the best credit scores. By applying and being rejected, the failed application will be logged on your file and make it harder to get other finance approved.

How Does a Smart Search Work?

Many sites, especially the large comparison sites, offer tool which is often marketed as an eligibility checker on their websites. Typically, you will be asked to input a few basic details such as your name, address, date of birth and what you do for a living. The information is then used by a credit referencing agency for a soft search. Usually, the results will be reported as a three-digit number, which is your credit score. The website can then suggest which products you might be more likely to be accepted for and will filter out the ones which are not right for you. Every site is different, but you will probably see a mark out of ten, or a percentage result against each product. A high score such as 8/10 or 95% indicates that you have a good chance of acceptance.

Soft searches aren’t an absolute guarantee though, so there is still the chance you may be rejected when you click through to the lender and make a “hard” application. Each lender has their own rules for making a loan and will look at not only the information on your credit file but also the information you have given on your application form to make a decision. The criteria for lending change regularly, and frustratingly, the lenders don’t have to give a reason when they reject you for a mortgage or credit card.

Increase Your Chances of Acceptance

As well as conducting soft searches to maximise your chances of being accepted, it’s also a good idea to understand your credit score and monitor it regularly. Lenders want to see you as a good risk, someone who will pay up on time, in full, and wont default on the agreement. Doing things like closing dormant accounts you are no longer using will have a positive effect on your rating, as will paying off old debt and getting into the habit of never missing a payment on any loan or credit agreement. Sometimes, the reason people are rejected is that there is a mistake on their file. If that applies to you, then you have the right to have it put right. You will of course need the paperwork to prove the mistake though.

If 2022 is the year you are planning to move house with a new mortgage, take out a loan for a new car, or think about taking 0% finance for a new kitchen, then it’s important to make sure your credit score is both accurate and in good shape. All of the big three credit referencing agencies in the UK have some sort of membership plan which gives you access to their files, but this costs money. One option is signing up for one of the four-week free trials to check your file, as long as you remember to cancel within the free period. But there are other ways to get access to your credit report without paying money to do so.

The three main credit scoring companies in the UK are Experian, Equifax, and TransUnion. You really should look at all three as all may contain different information, and you probably won’t be told which agency a lender will be using when you make a credit application.

Experian

Experian will let you create an account and check your credit score free of charge, but you’ll have to pay for access to the full report first. One way of doing this is by taking out the 30-day free trial option to look at your file to make sure there are no basic errors, and then just periodically checking your score to make sure it’s staying the same or improving.

Equifax

Equifax produces the “Clearscore” app, which you can download for Android and iPhone devices. It’s free to check your score and get access to your Equifax credit report. This is perhaps the most user-friendly app around in the credit checking market and has been designed to be easy to use.

TransUnion

Similar to Equifax, TransUnion (which was previously known as Callcredit) has an app and website called Credit Karma which you can use to check your credit record and score. This works broadly in the same way as Clearscore, and there is no reason why you can’t download both onto your smartphone or register with both the websites.

Why Should I Check My Credit Score?

Mistakes on your credit file could cause problems for you if you apply for credit, so it’s important to check that your file is accurate. Keeping an eye on your file on an ongoing basis will alert you to changes; if your credit score number suddenly starts dipping, then you can look at why that might be happening. Your file will show you where you can “clean up” the information about you, and some of these actions can improve your credit score too. This includes things like closing accounts which you are no longer using, and check that there are no defaults on your file which shouldn’t be there. If you think your credit record is being adversely affected by having a joint account with someone who has a poor credit record, then financially separate yourself from them and make sure the credit agencies are aware you have de-linked from them.

Checking your credit record doesn’t affect your score and won’t be recorded on your file in the same was that it is when you apply for credit. It won’t go against you if you check every day, or even every week. But that’s probably a little excessive. Get into the habit of checking monthly, and if you see any sudden dips in your credit file, dig a little deeper into the detail. If you do discover something amiss, search on the website of the organisation concerned for details about how to contact them and put it right.