Your credit score is assessed by a lender to find out if you are eligible for a loan, credit card or particular financial service.

From this a lender can determine the potential risk of lending to you, as well as their potential profit. People that always pay off their debts immediately could still be rejected for credit, so bear in mind that not all rejections are based on risk. If it doesn’t seem like you can make the lender any profit then they won’t have any incentive to lend to you.

Different scores are applied to several variables which we’ve outlined below:

Payment history: This is a record makes a note of your payments and whether or not they were late. Late payments decrease your score.

Public records: County Court Judgements and bankruptcies are examples of public records that would adversely affect your rating.

Amount Owed: How much you currently owe each lender is noted. Owing too much lowers your score.

Length of credit history: The longer the credit history, the better.

New accounts: Accounts that you open, as well as the dates are recorded. Too many new accounts in a short space of time can lower your credit rating.

Searches: Whenever you access your own credit report it is recorded on your file, but this information is not passed onto lenders, so you can access your own file as much as you want. Lenders will see access data from other lenders, landlords and insurance companies, for example.

Accounts in use: Too many open accounts can affect your score negatively.

Each lender has their own criteria to determine whether or not they’ll lend to you, assessing all of the above. It’s important that you monitor your credit report and make sure that all errors and out-of-date entries are corrected, as this can be the difference between being accepted or denied credit.

The following is NOT recorded on your credit file:

Parking fines, race, ethnicity, religion, salary, savings accounts, medical history, criminal record, CSA (Child Support Agency) records, denied applications, PPIs and bank charges.

After accessing your credit report there are a number of things to look out for which can lower your score. There are also several things you can do which don’t involve editing your file which can be beneficial for you.

The Electoral Roll

It’s very difficult to obtain any credit if you’re not on the electoral roll, unless you’re willing to settle for a high rate of interest, or sign up for a loan with a guarantor. Registering on the electoral roll is a very quick and simple process, and just involves entering your name, address and signature when your annual reminder arrives. This will count as your proof of residency.

Don’t send several applications at once

Even though lenders can’t see when you’ve accessed your credit report, they can see when you’ve given permission for others to access it. Too many entries can negatively affect your score, so make sure you are prudent with your applications and leave some time in between each one.

Repair and fix past problems/errors.

Credit scoring is an attempt to predict your behaviour. If you’ve missed a lot of payments in the past, they can determine that it’s likely you’ll do his again. If your recent history has been positive, then it can be assumed that this will probably continue.

Showing that you are trusted with credit is the best way to start. Find a suitable credit card and make small purchases each month, repaying the balance each time and staying within your credit limit. Overtime this will add to your reputation as being a good applicant.

Don’t miss any payments

Going into arrears within 6-12 months of applying for a new line of credit can really hold you back. If you want to build up a good credit score it is important that you maintain regular repayments.
If you hit a hard month, at least make sure to pay the minimum amount owed.

Check address details are accurate

On all of your active accounts you need to make sure the addresses are correct. This may seem like a minor error, but it can lower your credit score if, for example you have an old account classed as active on your current address.

Defaults on your report

If the default is unjust, first check if it’s on your other credit reports. Following this there are three things you can do:

• Contact the Financial Ombudsman. Provide the details of the default and request that they remove it from your file.
• Talk to the Lender. If the default is justified, but you’re in a position to settle the debt, request as part of the arrangement that they remove the default once you’ve made the payment. Make sure to get this in writing from the lender.
• Notice of Correction. If the default is unfair you can add a Notice of Correction and explain the situation briefly.

Keep on top of your credit cards

If you have a credit card you don’t use and are simply repaying the balance, cancel the card and continue with the payments. It’s advisable to cancel old cards, debts and accounts that aren’t in use.

Pay off your debts

This is probably quite obvious, but often overlooked. If you have savings or surplus income that you can put into repaying your debts, then clearing them off will benefit you and your credit report, which can lead to lower interest rates, mortgage rates and make you eligible for borrowing larger amounts.