Online banking

What factors affect a credit rating?

Your ability to borrow money is influenced by your credit score. If you're concerned about yours, knowing what factors can affect your credit rating will help you to make improvements, and so increase the likelihood of an application being accepted.

What is a credit rating?

Whether it's a credit card you've applied for or a mortgage or loan, your credit rating will affect your eligibility to borrow money.

A credit rating is essentially all of the information a lender will gather to decide whether you're a worthy candidate for credit. It will also help them decide how much they should lend you and, in some cases, how much interest they should charge. If your rating isn't as good as it could be, don't despair, there are a few steps you can take to improve it.

Calculating your credit rating

Your lender will weigh up different details about your financial history to calculate your credit score. It's worth considering your spending habits, such as the amount of money you owe versus the amount of available credit you have, and how you've handled past payments. If you've always paid your monthly amounts by the due date, this will help your rating. If your history includes missed or late payments, this could lower your score. Public records are also checked for bankruptcy, judgements and collection items – all of which can cause your rating to dip.

The lender will take a look at your accounts too – and in this case less can be more. If you've opened multiple accounts in a short period of time, or have lots of accounts open and in use, this activity can lower your rating.

It's best not to request credit from too many different sources; each time a lender gets your credit report a search is recorded on it. A large number of searches can lead to a lower rating. If you have a long history of credit, though, this is no bad thing if you've used it well. The better your credit history is, the better your credit rating.

Your credit report

Everyone has the legal right to see a copy of their credit report, so you can see how it fares before approaching a lender. You can check yours by consulting a credit reference agency, such as Experian, Equifax or Callcredit, and many of them offer free trials.

When you do see it, check whether there are any mistakes that could negatively affect your rating. It could be that you've been a victim of fraud. If you see anything that concerns you, contact the credit reference agency who will either remove the information or tell you why they disagree with your claim. If it's marked as an error, lenders can't include it when calculating your rating. It may be that your credit rating is in good shape and there's no cause for concern. If it is poor, take the time to improve your rating before seeking a credit card or loan from a lender and it's more likely that it will be accepted.

Improve your rating

If your credit rating isn't as strong as you'd hoped, there are steps that you can take to improve it. Firstly, it might be worth holding off on any credit applications until your score looks better – each search will be recorded by the lender and this could lower your credit rating.

Joining the electoral register is an easy way to help boost your score – if your name's not registered it's harder to get credit. Such quick fixes will improve your score, but long-term control of your finances will really secure that credible rating. Paying back money on time and in advance is the simplest way to show lenders that you're a reliable borrower. It might also be worth looking into credit-builder cards, which can help you to build your credit rating as you use them.