We’ve rounded up some of the most regularly asked questions about the world of credit scoring and answered them all for you in one place.
Why did I get rejected for credit even though I have a 'good' credit score?
Your credit score is a number summarising the information in your credit report. This means the higher your credit score, the more likely you are to be accepted for credit - but you could think of this as a rule of thumb, not a guarantee.
Lenders use your credit report as one of a number of factors when making a decision about whether or not to lend to you. The other factors include things like your job, your income and any past dealings you’ve had with the lender. This is all information that you’ll probably provide in your application for credit.
The important thing to remember is that lenders have their own criteria when assessing credit applications. This can vary from lender to lender. For example, some lenders might be prepared to take on a bit more risk than others, whereas others may place more emphasis on your salary or credit utilisation.
Different products will also have different criteria. So, for example, two credit cards from the same lender may have different criteria for acceptance. That’s why it’s so useful to use an eligibility checker, like the one in your ClearScore account, before you apply, whether that’s for a loan or a credit card. These let you see how likely it is that you’ll be accepted for that particular product, from that lender.
It might be a good idea to get in touch with the lender who has rejected your application and ask them why they said no. This can also help you with future applications.
Why are there mistakes on my credit report?
In order to understand why you might have errors on your account, it’s helpful to understand how your credit report is created.
Your credit report is compiled by a credit reference agency (CRA). In the UK there are 3 CRAs - Equifax, Experian and Callcredit. ClearScore gets your credit report information from Equifax.
CRAs gather data on you from a number of places – mostly from lenders. Every time you have anything to do with credit - whether this is taking out a new loan or paying a monthly bill – this will be reported back to one (or all) of the CRAs. This will then be added to your credit report. As you can imagine this is a lot of data and so errors can sometimes occur in the sheer volume of information being passed around.
Another reason for potential mistakes is to do with the personal details you use when you sign up to ClearScore. After you sign up with us, we contact Equifax to get hold of your credit report (you can learn more about this process here). If the name or address you have provided us with is different to the information that you've put on any of your credit accounts, we may not be able to match this up with your ClearScore account. For example, if you sign up to ClearScore with the name ‘John’ but some of your credit accounts are under the name ‘Jonathan’ we might not be able to pull these accounts from your Equifax credit report. To avoid this situation, we recommend using exactly the same name and address format across all your credit accounts.
You can read more about how to correct mistakes or missing information on your report.
Why does my score drop when I take out new credit?
If you apply for a new line of credit, such as a new credit card or a loan, your credit score might initially drop. But if you manage your new credit responsibly, your score should return to the original level relatively quickly. Taking out new credit could even help your credit score build up further over time.
There are two main reasons your credit score may drop when you've applied for credit:
When you apply for credit a lender will carry out a ‘hard search’ or a ‘credit application search’ on your report. This type of search is recorded on your report and it may negatively affect your credit score. If you have applied for several lines of credit in a short space of time, this may further impact you score. This is because it can give the impression to lenders you’re too eager for credit, which may put them off. (That’s why it’s always best to use an eligibility checker, such as the one on your ClearScore account, before applying for credit).
When you take out a new line of credit the average age of your credit accounts will decrease. This may cause your score to go down as lenders tend to prefer seeing older credit accounts. This is because this behaviour suggests stability, which helps prove to lenders that you're a reliable borrower, and a lower credit risk. Once your account gets older and the average credit age on your report goes back up, your credit score should build back up again.
So, applying for credit can cause your score to drop slightly at first. However, if you pay back your bills on time and in full, and keep your credit usage in check, the chances are your credit score will recover and continue to improve over time.
What do the negative and positive factors on my ClearScore report mean?
When you log into your ClearScore account you’ll see a list of the positive and negative factors on your credit report. The factors you see listed are just the ones that apply to your credit report. They act as a guide so you can understand what may be affecting your credit score and what might influence any lenders who are making decisions about you. This list can only be seen by you, and not by the lenders.
Some factors, such as 'you have had at least one account in default or repossession' may appear even after you've settled the bill. That's because things can stay on your credit report for up to six years. But they tend to become less important the further into the past they get.
Unfortunately, we can’t tell you which of the factors you see may be having the biggest impact on your score. This is because different lenders may view the information in your report slightly differently.
How can I improve my credit score?
As a simple step to improve your score, you may want to check for any mistakes on your report – for example, typos in your name, or credit accounts you have that are missing. Having the wrong information on your report could negatively affect your credit score or (at the least) stop it from being as high as it could be. If you find any errors on your ClearScore report, you can use our website to raise a dispute directly with Equifax.
There are also things you can do now to help build up your credit score over time. For example, you could start to use a credit card to borrow and repay small amounts – just to prove you can borrow responsibly. You may also want to look at how much of your credit limit you tend to use and think of ways you can optimise this to improve your credit score. For example, try keeping your credit utilisation to 30% or less of your total credit limit, as using more than this could impact on your credit score. It's important to remember that although Equifax suggest this, each lender will have their own criteria for the optimal level of credit usage. You can read our article about all the different ways to improve your credit score.