Why having a good credit history is important
Looking to apply for a personal loan, mortgage or credit card, but unsure if you’ll get accepted? Our helpful guide to what makes a good credit history can help you understand how to get your own credit rating on track.
Are my credit rating and credit history linked?
Your credit rating is a score worked out by a credit reference agency, based on your current financial situation and your credit history. This rating is used by banks and other lenders when they are deciding whether or not to lend you money or give you credit. It gives them an idea of how much of a risk you might be if they lend you money.
The better your credit rating, the lower risk they will think you are and the more likely you are to be approved.
What is my credit history?
Your credit history is a record of the way you’ve handled debt and credit in the past. It looks at things like:
- How many bank accounts and credit cards you have, and how long you have had them for.
- How many personal loans or mortgages you have or have had in the past.
- Whether you’re often late or early with payments.
- Details of any court judgements or bankruptcies. These will stay on your record for 6 years.
- Whether you share any accounts with anyone else and if you do, a copy of their details.
What else is in my credit history?
Your credit history will include a few other important bits of information, including:
- Your name, address, date of birth, and any previous addresses.
- Whether your name is registered on the electoral roll at your current address.
- If you’ve ever been a victim of identity theft, have committed fraud or have had fraud committed in your name. Details of fraud will be in the CIFAS part of your credit report and you can find out more on the CIFAS website.
- Whether you pay your mortgage on time. Most credit reference agencies don’t look at rent payments, apart from Experian, one of the big three agencies.
What does a good credit history look like?
Not all good credit histories look exactly the same but they are likely to have a few key things in common.
Here are some things that are likely to have a positive impact on your credit rating:
- Having a credit card which you use (and pay back) regularly.
- Keeping up with credit card repayments.
- Paying your utility bills on time.
- Ensuring you are on the electoral roll.
- Avoiding bankruptcy.
- Paying back your mortgage or any personal loans in line with what was agreed with your lender.
What does a poor credit history look like?
There are a number of factors which could lead to a poor credit history, which could then give you a low credit score. Some examples are:
- You’ve been late with payments on one credit card, or several.
- You've received County Court Judgements for failing to pay bills.
- You own a home but have missed mortgage payments.
- You've been made bankrupt.
- You have errors on your report because someone used your name to commit fraud.
I have a poor credit history, can I still improve my credit rating?
The good news is that even if you have a poor credit history or don’t have a credit history at all, there are ways to build or improve it so you might get a better credit rating.
Here are a few things that might help:
- Pay all bills on time.
- Make sure your name is on the electoral register.
- Check everything on your record is correct and no one else has used your information to commit fraud.
- Apply for a credit card, meet the minimum monthly payments and pay off any outstanding balances. This can show that you’re responsible with credit.
- If you are rejected for a credit card or loan, it may be worth trying to improve your score before you apply again. Applying for another straight away can have a negative impact on your credit rating.
Another little help: There is help out there if your score is low or if you’re having trouble making loan, credit card or mortgage repayments. Our guide to dealing with financial difficulty could be a handy place to start.
Get on top of your credit history
We hope this quick fire guide has left you with a clear understanding of how your credit history and your credit rating are connected. By being responsible with your finances you can build a good credit rating, making you more likely to be accepted for things like credit cards and mortgages in the future.
The content on this page aims to offer an informative introduction to the subject matter but does not constitute expert financial advice specific to your own situation. All facts and figures were correct at time of publication and were compiled using a range of sources.