Understanding your credit score


Understanding your credit score


Your credit score can be key to progressing in your financial life, from making it easier to access a credit card or open a bank account, to improving your chances of getting a mortgage at a reasonable rate of interest.

In this guide we explore debt and your credit score, including what your credit score is, how debt affects credit scores, and how long it takes for your credit score to improve after paying off a debt.

What is a credit score?

Your credit score, also known as your credit rating or ranking, is a number that indicates how likely you are to qualify for credit.

How well you score is determined by a range of factors, including your overall debt level, how much of your debt is unpaid, if you have any defaults, and how much credit is still available to you. The UK model generally ranges between 300 and 850, however, each credit reference agency has their own version.

The higher your score is, the more likely you are to be accepted for credit. If you’re struggling financially and there are defaults on your report, your score will be lower, making it harder for you to apply for financial products like mortgages, loans, and car finance.

The main credit reference agencies in the UK are TransUnion, Equifax, and Experian, although there are alternatives like ClearScore and credit karma.

How much does debt affect your credit score?

How much debt affects your credit score depends on various factors, including what kind of debt you take on, who your creditors are, and whether or not you repay what you owe.

Not all debt is bad debt. In fact, taking on certain debts can boost your credit score. Many people take out a credit card, for example, to pay for something simple like a mobile phone contract. As long as you stay within your credit limits and pay what you owe each month, you can build up a positive payment history and improve your credit score over time.

If you max out your credit cards, on the other hand, and the credit card company begin chasing you for missed payments, your credit score will be affected in a negative way. You’ll build up a poor credit history that may make it hard for you to access credit products, bank accounts, and favourable interest rates in future.

What does and doesn’t affect my credit score?

How you handle your finances will affect your credit score, but there are certain factors that can have more of a negative impact than others.

What will affect your credit score

Missed payments

Perhaps the most common factor that brings down your credit score is missing or late repayments as it presents you as a high risk for credit. This is also the same for those who enter sequestration or insolvency.

No credit history

It’s often perceived that having multiple lines of credit is bad for your score, but this isn’t always the case. It can also hurt your credit score to have little to no credit history, as there’s nothing on the report to build up a score from.

Your score can be affected if you’re not currently on the electoral register, too. Because the electoral roll proves your name and address to lenders, it boosts your chances of being accepted for credit.

What won’t affect your credit score

Mortgages and student loans

There are some factors that won’t necessarily affect your score. Debts like your student loan or arrears on your rent or mortgage will only bring your score down if you have defaulted on it or it has been passed to a debt collector.

Your current address

It is also a complete myth that your address has a credit score. If the individuals who have lived in your home before you have a bad credit score, this will not affect yours. This also goes for couples. Your partner’s credit score has no impact on yours, with the exception of joint accounts.

What's the difference between your credit score and your credit history?

Credit score and credit history are terms that are often mentioned in the same breath, but people who aren’t industry experts don’t always understand the differences between the two, and where they overlap.

Credit score

Your credit score (also known as a FICO score) is a numerical value between 0 and 999. Your credit score is used by lenders – think car insurance companies, or mortgage lenders – to gauge your creditworthiness. The higher your credit score, the more likely they are to approve your credit usage.

Credit history

Your credit history (or credit profile) amounts to all of the information that makes up your financial history, from credit accounts and credit cards, to your bank balance and payment history. Your credit history also contains information of any debts you have accrued, and any formal debt solution you have taken part in. The information in your credit history will inform how high your credit score is.

What should I watch out for on my credit file?

We always advise that you check your credit report regularly. Even if you aren’t applying for credit, it’s important to check in on your credit report for any errors or missing information to help avoid financial issues later on.

It’s also important to check that your score has been updated. Once you’ve paid back a debt, it should show on your report as settled, but the credit reference agencies can take some time to do this so it’s worth double-checking before you apply for more credit.

What will happen to my credit score if I enter a Trust Deed or a Debt Arrangement Scheme?

It’s likely that your credit score will already have been affected if you’re struggling with debt, but entering into a debt solution can also have an impact.

If you get a Trust Deed or a DAS, it will be recorded on a public register which can be found on the Accountant in Bankruptcy website. This is then used by credit reference agencies to add information to your credit report, which will ultimately appear on your credit score.

It will remain there for around six years, although this may be longer depending on the length of your arrangement.

It is important to remember that once you stop your regular payments to your debts, creditors are able to register defaults on your report, which will ultimately bring your score down. The defaults will remain there for the duration of your arrangement and be updated to settled once it has been completed.

If you are struggling with your finances and your credit score is low, we can help. Contact us today to speak to one of our friendly, professional advisors for free and impartial advice.

How long does it take for you to improve your credit score after paying a debt?

When you repay a debt, you want to make sure you get the benefit of that positive active, by having it reflected in your credit score. While the credit scoring process will take your debt repayment into account, it can take time for it to boost your credit score.

It usually takes a month or two for debt payment information to pass from your creditors to the credit agencies responsible for credit scoring. The process follows the cycle of monthly reporting that lenders take part in, so it can take time for the information to filter through.

While it may only take a month or two for your credit score to improve based on paying off debt, the same debt will remain on your credit history for longer. Your credit report is a recorded history of all of your financial transactions, and will carry details of your debt for six years from the day you first took the debt on.

Where can I get debt advice and more information about my credit rating?

Having a good credit score makes life a lot easier, especially if you’re looking to take out a loan, access a mortgage, or take another big step in your financial life. For people struggling with debt, however, worrying about their credit score can be an ongoing concern.

The team at Carrington Dean can help. As the biggest debt solutions company in Scotland, we’re experts in helping people deal with debt, and our advisers can give you the information you need to get on top of problem debt and improve your credit rating over time.

To put your debt behind you and start rebuilding your financial profile, talk to one of our expert debt advisers today on 0800 043 1320.

We've helped so many others just like you.