You don’t have a single “credit score”, instead each time you apply for credit the information in your credit file is compared against the requirements of the lender for the product. Every lender has different criteria, for example some may put a higher emphasis on total outstanding debt whereas others may care much more about missed payments. Their criteria is based on their risk profile and goals which is often a certain type of customer. The lender isn’t necessarily thinking “will this person repay us?” they’re thinking “will this customer be profitable for us?” – similar but not the same.
Your credit file contains a history of your use of credit which includes repayments, borrowing, outstanding debt and financial links. Companies like Noddle have their own criteria that is generalised based on their knowledge of the industry, for example a CCJ is very bad and will lead to rejections by many lenders so Noddle (and others) know that a CCJ should have a significant negative impact on the score they give you.
The most important single factor for your credit worthiness is being on the electoral roll, without that you’re pretty much unable to get any credit and will be outright rejected. Missed payments are a major problem too, if you ever miss a payment it’ll be on your credit file for 6 years and that is a strong indicator to lenders that you’re a bad client, you should always make payments on time.
Available credit can be a positive and a negative depending on the circumstance. If you earn £25,000 per year and have £20,000 in available credit you are unlikely to receive an unsecured loan of £20,000 even if you have a great history of repayments, in general the cap on the amount of unsecured debt you can have is your salary – but again, every lender is different.
Having no history is worse than having bad history, because bad history is a known quantity whereas unknown history… it’s unknown, you could be the worst client they’ve ever seen. That’s why your first credit card will rarely have a limit more than £600 and why it’s very helpful to get a mobile phone contract in your name as a teenager. Student overdrafts are an exception to this rule but that’s because they’re secured by the knowledge of student loans.
Essentially, if you’re concerned about your credit score (which you should think about as “credit worthiness” instead) then you should:
- Always make payments on time
- Use credit (responsibly)
Daily spending on a credit card (with full payment of the balance every month) is a great way to build your credit worthiness, it will demonstrate that you can use credit responsibly.