Improving Your Experian Credit Score
Experian calculates a credit score using the same information as many lenders, so your Experian credit score gives you a strong indication of how lenders are likely to score your application when they run their own checks. Your Experian Credit Score is a number from 0-999. A higher number means you are more likely to be a reliable customer.
It’s based on certain ‘factors’ including whether you are making payments on time, how much credit you have, what credit accounts you have, how old they are, late payments and the number of accounts you have.
It’s complex – so here is a helpful guide to improving your score.
This is the amount you have available to spend on credit and store cards. So if you have a £5,000 credit limit and have used £2,000, then you have available credit of £3,000, or 60%. It is this percentage of available credit that lenders may look at when calculating your credit score.
If you’ve maxed out your cards, or your balances are quite near to the limits, this could be a warning sign that you’re struggling with your debts. Bringing your balances down away from your limits can really help your Experian Credit Score – the lower your balances, the better.
Keeping up to date with your payments will look good on your credit report. If you are late with a payment it could make lenders wary - they may think you are struggling with your finances. If you have late payments on your credit report, then your credit score is likely to be lower than if you pay on time, but as you keep up to date with payments going forwards, those late payments will usually have less of a negative effect on your score.
Applications for credit
Every time a lender looks at your credit report – which generally happens when you make any application for a credit card, mobile phone, store card, mortgage etc. – it leaves a credit check ‘footprint’.
If there are a lot of credit checks on your report in the last six months – either at the same time, or one after the other – some lenders might wonder why so many applications were made, and may worry about you taking on more than you can afford. Try to avoid making too many applications in a short space of time. If you’ve already made them, try not to make any more for a while – the ones that are already recorded will get older, and your score will bounce back over time.
Being on the Electoral Roll at your current address gives lenders more confidence that you live at that address. Make sure you’re registered there to improve your chances of being accepted for credit.
Total amount of credit
This is the total amount of money you owe across all of your accounts (excluding your mortgage). The higher this is, the more likely lenders will be worried about you adding yet another payment. Even if you are completely up to date with your payments, there’s always a possibility that your circumstances may change and you may find yourself in difficulty. The higher your credit balance, the lower your score is likely to be.
When you make any credit agreement – taking out a new credit card or buying a sofa on ‘HP’, for instance – this counts as a new account. If you have a lot of new accounts, then a lender may well think that you are relying on credit more than your income, which may well make them nervous. A large number of new accounts – in the last six months, for example – will probably reduce your credit score.
If you have a high credit limit on one of your credit or store cards, a new lender might take this as a sign that you have a good credit history with an existing lender - the higher this limit, the more this would suggest the lender trusts you. For many new lenders this can boost your credit score, but it’s worth noting that this may well be looked at alongside your available credit. After all, a £15,000 credit limit on a card is all well and good, but not if you have used it all up.
These are the credit accounts that you are currently using – including credit cards, loans, store cards, utility bills, mobile phones and overdrafts. Active accounts don’t include the ones that you have closed down. If you have a lot of active commitments, then lenders might worry that you are overstretched, so it could be a good idea to close down any that you’re not using.
If you have closed an account in full it’s known as being ‘settled’. Lenders often look favourably on these accounts as it shows you were a reliable customer if you paid the account on time until you closed it.
Age of accounts
This is the average age of all your credit accounts. A higher age shows lenders that you’re likely to have had more experience with managing credit. So as the average age of your accounts increases, the more points you are likely to score.
Defaults and delinquent accounts
If you fail to keep to the terms of your agreement, a lender can close down your account – this is known as a default. Some lenders are more ‘patient’ than others, but if you miss between three and six months’ payments, most lenders will probably issue you with a formal default notice, which goes on your credit report.
Defaults stay on your credit report for six years from the date of default along with how much you owe and whether you’ve made any repayments in that time.
A lender would look at defaults and delinquent accounts and read them as a sign that you have struggled to make payments. They can seriously affect your ability to gain credit and will significantly reduce your Experian Credit Score.
Bankruptcy, IVAs or CCJs
If you have been declared bankrupt, have a County Court Judgement (CCJ) against you, or have entered into an individual voluntary arrangement (IVA), these will be on your credit report. Bankruptcy stays on your credit report for at least six years. Legally you have to tell a lender about your bankruptcy if you apply for credit of more than £500. Bankruptcy makes it very difficult to obtain credit and will really hit your credit score while it’s on your report.
An IVA will stay on your report for a minimum of six years. If you complete it early it may reduce the impact on your credit score with certain lenders who may see it as a sign that you have put things right.
A CCJ damages your credit score and will stay on your credit report for six years.
At the end of the day, lenders don’t look kindly on any of these and your credit score (and your ability to borrow money) is going to be affected as long as they are on your credit report.
A lot of the score factors above cross over with each other. You might have a long-standing account acting in your favour, but if you use all of the available credit, it might reduce your Experian Credit Score. By making sure you understand these factors and making positive changes where you can, it’s possible to improve your score quite significantly.
Representative example: £400 loan repayable over 6 months. 6 monthly payments of £126.40. Rate of interest 179% p.a. fixed. Representative 991% APR. Total amount payable is £758.40.