Ok so you have your report in front of you and you have been given a score, but what does it all mean? Is it a good credit score or a poor credit score?
The data on your Experian Credit Report is represented by a number between 0 and 999, which is known as your Experian Credit Score. Your Experian Credit Score is determined by adding the various elements in your report which have been drawn from a number of places such as lender information and the voter's roll.
What about your Payments?
Making on-time payments reflects favorably on your credit record and report. Lenders could be apprehensive if you’re late with payments since they might assume you’re having financial difficulties. Your credit score will likely be worse if you frequently make late payments than it will be if you always paid when it was due.
Credit applications
When you apply for a credit card, mobile phone, shop card, or mortgage, or any other type of loan, a lender will look at your credit report, leaving a credit search “footprint” behind. There are two types of a footprint a 'soft footprint’ and a ‘hard footprint. The latter one is there for all to see.
Some lenders might be confused as to why there were so many applications submitted and may fear that you are taking on more debt than you can handle if there are numerous credit searches on your report, whether they occur simultaneously or one after the other.
Your credit score will probably be higher if you have had fewer credit checks on your report, particularly in the recent six months or so.
What are your outstanding credit balances?
This is the total sum of all outstanding balances on your accounts (excluding your mortgage). This will increase the likelihood that lenders will be concerned if you make add further additional payments. Even if all of your payments are current, there is always a chance that your situation could alter, and you would run into trouble. Your credit score is more likely to be lower the bigger your credit balance is.
Accessible credit
This is the credit and store card balances that you have available for use. Therefore, if your credit limit is £6,000 and you have used £3,000 of it, your remaining credit balance is £3,000, or 50%. Most lenders will use your credit score when determining the percentage of accessible credit. If you have little accessible credit, it may be an indication that you have used up all your credit limits on your cards and are having trouble paying off your obligations, both of which could harm your credit score putting it in the poor credit category.
Loan ceilings
A new lender may view the presence of a large credit limit on one of your credit or store cards as evidence that your credit history with an earlier lender is solid. The lender is more confident in you if this limit is larger. This will raise your credit score for many new lenders, but it’s important to note that it can also be taken into account along with your available credit. After all, having a credit limit of £20,000 on a card is great, but not if you have already used it all.
Current accounts
These are the credit accounts you currently have open, such as credit cards, loans, shop cards, utility bills, cell phones, and overdrafts. The accounts you’ve closed are not counted as active accounts. Lenders can be concerned that you are overcommitted if you have a lot of ongoing obligations.
Account closures
An account is said to be “settled” if it has been fully closed. These accounts are favorable to lenders since they demonstrate that you were a trustworthy borrower.
Expired accounts
This is how old your credit accounts are on average. An older age indicates to lenders that you probably have more experience handling credit. Therefore, you are more likely to earn points the older your accounts are on average.
Accounts with defaults
Lenders have the right to close your account if you don’t adhere to the conditions of your contract. We call this a default. While some lenders are more flexible than others, if you consistently skip payments, lenders may formally notify you of the default and report it to the credit bureaus.
Defaults, together with the amount you owe, whether you’ve made any repayments during that time, and whether you’ve addressed the default, remain on your credit report for six years following the date of the default.
Defaults are viewed by lenders as evidence that you have had difficulty making payments. They will severely lower your credit score and have a negative impact on your ability to obtain credit.
The electoral roll
Lenders check the electoral register, a list of individuals who have registered to vote, to make sure you are who you say you are and that your address is correct. You should enroll in the electoral roll if you are a citizen of the UK, the EU, or a member of the Commonwealth. The chance to raise your credit score was lost if you weren’t registered.
IVAs, CCJs, or bankruptcy
These items will appear on your credit report if you were declared bankrupt, have a County Court Judgment (CCJ) against you, or have made an individual voluntary arrangement (IVA). Your credit score is impacted differently by each. Your credit report will show a bankruptcy for at least six years. If you request credit worth more than £500, you are legally required to inform the lender about your bankruptcy. A bankruptcy will significantly lower your credit score and make it very difficult to get financing though it is worth looking at individual providers' criteria around this, ie a mortgage lender.
Your credit report will reflect an IVA for at least six years. If you finish it sooner than expected, certain lenders who may view it as a sign that you have made amends may consider it to have less of an influence on your credit score.
A CCJ hurts your credit score but paying it off (‘fulfilling’ the CCJ) will improve it as it demonstrates that you are making an effort to deal with the debt. In the end, lenders don’t view any of them favorably, and if they are listed on your credit report, they will have an impact on your credit score (and your capacity to borrow money).
Many of the scoring elements interact with one another and are considered together. You might have an account where you frequently make on-time payments, for instance. Even though this would be in your favor, your score could be negatively impacted if you use all the allotted credit on it. You may be able to raise your credit score by making sure you comprehend these elements and by making constructive changes where you can.