7 min read

The factors affecting your credit score: part one

Frankie Jones
1 May 2019

Figuring out what’s made your credit score change can feel a bit like trying to solve an algebra equation - the moment you think you’ve got it, something else comes into play. But it doesn’t have to be so confusing. We’re here to clarify exactly what affects your score so you know what to keep an eye on.

There are 9 behaviours that impact your score in a big way, and we’re doing a deep dive into these factors across three articles. This is part one of three - read on to understand how these elements combine to make up your unique credit score and learn how to take control of them for good. Head to part two and part three when you’re all clued up.

Factor 1: Missed payments

Missing a payment indicates to lenders that you can’t be trusted to repay your debt, which is likely to damage your credit score.

How this affects your score

When you miss a payment, the lender passes this information on to Equifax (the credit reference agency we get your credit report from). Equifax will reflect this information in your report, and your score will likely take a hit too.

This is because missing a payment signals to the lender that you can’t manage your debt and therefore are a risky borrower. This could make it harder for you to borrow money in the future, particularly if you miss a number of payments and your debt goes into default. Lenders have different rules about how many payments you need to miss before you default - for some it could be two, for others you might be allowed up to six missed payments. Learn more about the impact of defaults on your finances here.

Did you know?
Missed payments will stay on your credit report for 6 years, even once you’ve paid them off.

What to do about it

If you’re yet to miss a payment, great! Prone to being forgetful? Set a reminder to make the payment a couple of days before it’s due. Even better, set up a direct debit on your bank account so you don’t even need to think about it. (Only if you’re sure you’ll have enough money in your account each month to afford the payment. If you don’t, you risk going into your overdraft and being charged a fee.)

If you’ve already missed a payment, you have these options:

  • If you just forgot to pay, try to make the payment as soon as possible. It will still appear on your credit report, but the fact you paid eventually should have a positive effect on your credit score.
  • If you couldn’t pay, (maybe because you couldn’t afford it) it’s best to talk to your lender. Be honest with them about your situation and they should be able to advise you on the right steps to take. They might offer to arrange a repayment plan or put your interest on hold until you’re in a more stable financial situation.

Factor 2: Closing old accounts

While it might seem logical to close down credit accounts you no longer use, this could hurt your credit score more than you know.

How this affects your score

Lenders like to see proof of long, stable financial relationships between you and your existing banks and providers. So when you have a credit account on your credit report that’s been open for a number of years, this shows that you’re capable of managing credit responsibly and brings up the average age of your accounts. Closing an old account will effectively shorten your credit history, making you appear less experienced in the world of borrowing.

Closing down a credit account might also cause your credit utilisation rate to increase which could have a negative effect on your score. When you close an account, your credit limit will drop, so unless you cut back on your spending, you risk bringing up your credit utilisation rate.

There are of course some benefits of closing an old account. For example, it might make sense to consider closing an account you no longer use if it’s costing you money in interest or other fees. If you rarely check your credit report, (this is why you should) you should consider closing down unused accounts as you might not notice if they’re being used fraudulently.

What to do about it

We recommend keeping a few of your oldest credit accounts open, even if you no longer use them. If you’ve got a number of old, unused accounts open, it’s okay to cancel a few of them, but keeping a few active will act as evidence of your strong and stable credit history. Generally, the older the account, the more valuable it will be to banks and lenders.

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Factor 3: Going over your credit limit

Exceeding your credit limit is likely to harm your credit score as it suggests to lenders that you’re overly reliant on credit.

How this affects your score

If you go over your credit limit altogether, either your provider might reject the transaction or they’ll charge you for it. And you might not be able to use your card again until you’ve paid off the balance. This will likely cause your score to dip, as it suggests to lenders that you’re incapable of handling the credit you’ve been given. This could also affect your ability to borrow in the future as lenders might question your ability to manage more credit than you’ve already got.

What to do about it

Firstly, try to keep your spending down. Ideally you should spend no more than 30% of your available credit limit (more on this in part two of the factors series), so if you know you have £2000 available, try not to spend more than £600 at any given time.

If you need to buy something but it’s going to push you over your credit limit, could you spread the cost across a number of different cards?

If you’re really struggling to stay within your means, it might be a good idea to ask your provider to increase your credit limit, particularly if you anticipate some expensive purchases coming up. There’s no guarantee they’ll say yes, but it’s definitely worth a shot. Get in touch with your provider as soon as possible after you go over your credit limit - you can offer to pay off part of your balance so that you’re within your limit again.

Ready to find out what else is affecting your credit score? Head to part two and part three of our factors series.

by Frankie Jones

Frankie Jones is ClearScore's in-house Copywriter. 

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