There was good news in the UK last year from a financial perspective, as the average credit score on these shores increased by five points despite an uncertain and challenging economic climate.
A credit score provides a numerical expression based on a level analysis of an individual’s credit files, based on past payment history and a variety of alternative factors.
This ultimately determines the creditworthiness of an individual in the eyes of lenders. But what are the top five factors that impact your credit score? Here’s a brief breakdown!
- Payment History: Over time, you’ll build a credit history through recurring repayments in the form of rent, mortgage, car repayments, debt or other types of finance. Such payments can have a positive or negative impact on your score over time, with missed or late payments (or defaulted accounts) causing significant issues that may prevent further credit applications.
- The Amounts Owed: Next up is the total amount of money owed in unsecured debt, which also reveals your total credit usage across outstanding cards, loans and balances. This is calculated simply by dividing the total revolving credit you’re currently using by the total of all limits, and using more than 30% of your available credit is negative in the eyes of lenders.
- Credit History Length: This is a lesser-known factor, and one that refers to how long you’ve held credit accounts. This comprises 15% of your final FICO score, including the age of your oldest account, the age of the newest addition and the average age across the board. In general terms, the longer your credit history, the higher your average credit score.
- Your Unique Credit Mix: Those individuals with the very best credit scores tend to boast a diverse range of credit accounts, including a car loan, credit card mortgage and a student loan. Other products can be included, of course, while a meld of secured and unsecured loans may also help to create a viable mix. Lenders definitely consider the various types of accounts held when creating their scoring models, and your overall credit mix accounts for 10% of your FICO score.
- Your Access and Use of New Credit: Bad credit can become something of a trap, as while creating a recent history of positive transactions enables you to improve your score over time, it can be hard to open new accounts with a bad score. The good news is that you can use so-called “bad credit” products to help build and enhance your credit score, including specialist cards and loans. Of course, having too many accounts or applications can damage your score, so you’ll need to be selective when choosing viable products.