Why is my credit score going down?

Martin Lewis provides advice on how to boost credit scores

Credit scores play a key role in determining your financial eligibility for credit cards, loans, mortgages or other services. People with a higher score are often seen as lower risk, which means lenders are more likely to give them credit. Therefore if one’s credit score is going down, they may be considered as a higher risk by lenders.

What is a credit score?

A credit score, also known as a credit rating, is an indication of how a typical lender would assess you.

These ratings are used as a means of predicting your future behaviour in terms of credit, based upon your history.

To establish your credit score, lenders analyse different data related to your past credit history.

The following factors may impact your credit score:

  • How much of your available credit you are using
  • Your total level of debt
  • Your history of credit account payments
  • Credit searches
  • Public records
  • Fraud data
  • Court records, including county court judgments.

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Caroline Hughes, property expert and founder of personal finance life planning tool, Lifetise said the ideal credit score depends on the rules devised by each lender.

She told Express.co.uk: “The ideal credit score varies depending on the lender, but as a rule of thumb you want a good or excellent rating in order to access the better deals, particularly when it comes to things like mortgages.

“We have three main credit scoring agencies in the UK and they each score differently.

“So ideally you’re looking for the following scores: Experian: Good is 881+, Excellent is 961+; TransUnion: Good is 604+ (rating four), Excellent is 628+ (rating five) and Equifax: Good is 420+, Excellent is 466+.”

She said one of the most important factors in gaining a good credit score is making sure you are registered to vote.

Ms Hughes said: “One of the key things that affects your credit score is whether you are on the electoral roll.

“If you are renting and have moved addresses, then double-check you are registered at the right address on the Government website.

“In some instances, to get a credit score you need to show you can get and repay credit.

“If you don’t have any credit cards, and have never taken out any loans, you might be surprised that your credit score is lower than you would expect.

“That is because there is no record of your ability to pay back credit.

“To help build up your credit record, you could think about getting a 0 percent credit card and using that for everyday purchases, then paying it off in full every month.”

Why is your credit going down?

Justin Basini, CEO and co-founder of credit marketplace platform ClearScore said it is impossible to pinpoint a sole reason why one’s credit score might be decreasing.

Mr Basini told Express.co.uk: “It’s impossible to identify one reason why someone’s credit score might be going down as different factors can result in a decrease in credit score – and CRAs don’t share their algorithms with consumers.

“However, there are certain factors that will affect credit scores across the board.

“If someone is making regular applications for credit in a short space of time this can affect their score as lenders can view this as someone who is desperate for or irresponsible with credit.

“Also not being on the electoral register or moving house often can lead to a lower credit score with banks and loan providers using the electoral register as a way to prove who you are.

“Missing and being late on payments for bills, credit cards and mobile phone bills can also be marked on your credit report.”

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Chris Lilly, the lead publisher at the personal finance comparison site, finder.com, said those who have struggled financially amid the past year could see their credit scores impacted now.

Chris Lilly told Express.co.uk: “Missed repayments on loans or credit cards are perhaps the most obvious cause (thankfully an arranged repayment holiday agreed with your credit provider protects you from any missed repayments being reported).

“Applications for credit also have a small (and usually short-lived) negative effect on your credit score – which is why it’s best not to make too many applications for credit in a short space of time.

“Those lucky enough to have kept their jobs throughout the pandemic have taken the opportunity to reduce debts – paying off credit cards, personal loans etc.

“But it’s worth remembering that to appeal to lenders, borrowers must be able to show recent responsible use of credit.

“However, your credit score is just one part of the story when you’re applying for credit – equally important is your ability to repay.”

Online mortgage platform Haysto co-founder Paul Coss told Express.co.uk: “A good credit score is vital as it can affect your mortgage application, business loans, and sometimes they are checked by employers.”

He added missing payments and incurring bad credit are means by which one’s credit score could go down.

Mr Coss said: “There are all sorts of reasons why someone could miss monthly payments and find themselves labelled as ‘bad credit’, for example, something that is as easy as accidentally forgetting a payment for a phone bill one month.

“This last year has thrown numerous curveballs into the mix, from furlough to redundancy, and with many people taking home less money, it’s entirely possible that some payments could have been missed.

“However, that doesn’t mean they are not trustworthy and should be penalised for years to come.”

The experts all advise to adhere to the following tips to improve your credit score:

  • Use a credit card little and often
  • Keep your credit utilisation low
  • Fix mistakes on your report
  • Get on the electoral roll
  • Avoid making multiple credit applications in a short space of time
  • Pay your bills on time.

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