Making sense of your credit score

The Resident Voice Index™ Cost of Living: Crunch Time survey has closed and results show that some social housing residents are feeling worried about how debts might affect their credit score.

I am currently staying afloat but I don’t know how much longer I will be able to. The stress is I have worked hard to improve my credit and know it will be damaged if I contact my creditors to ask for a payment break or admit I am struggling.”

Resident Voice Index™ Cost of Living: Crunch Time survey respondent

Knowing what does and doesn’t affect your credit score can be confusing and there’s a lot of mixed advice out there. The cost of living crisis has made the pressure worse and lots of people are worried about building or keeping good credit scores whilst also having to pay more for rent, bills, fuel and food.

We hope this blog will help you with some of these worries – it will explain credit scores, look at how to achieve a good one and debunk some common myths about credit scores that people tend to worry about.

What is a credit score?

  • A credit score is a way to help lenders decide whether you qualify for a loan (such as a mortgage or bank loan) or whether you can apply for a credit card
  • The score you get will be a 3-digit number (a higher score means you are seen as a lower risk and therefore more likely to be able to borrow money)
  • The score is also a prediction of your future behaviour, based on previous dealings with the lender and other bits of your financial history

Why is your credit score important?

  • Credit scores are important because they determine whether or not you will be able to borrow money from a regulated lender
  • Getting accepted for credit cards and loans is dependent on your credit score
  • If lenders think you are a low-risk borrower (in other words, if you have a good credit score), you may get better interest rates on things like car insurance, loans and credit cards
  • A bad credit assessment will make it more likely that you will be declined for a mortgage

What can you do to build your credit score if you have debt?

Using debt management plans (DMPs) and failing to repay outstanding debts can be bad for your credit score, as they can show that you have failed to pay debts in the past. However, if you keep up with your DMP, it can be seen as a good thing by lenders and may actually improve your scoring.

There are other things you can do to improve your credit score if you are struggling:

  • If you are able to, register to vote. It is easier to get accepted for credit if you are on the electoral register
  • Use free eligibility calculators to check your chances of being accepted for credit. This will allow you to check your credit score without doing a full credit check. Doing too many genuine applications may damage score
  • Using the Rental Exchange scheme, anyone who pays rent can share their rental payment history with credit reference agency, Experian. If you have paid rent consistently and on time, then this will give lenders trust that you would be able to pay back a loan and so they may be more willing to lend money to you
  • Paying on time. Even being able to pay the minimum amount off a credit card on time each month will improve your credit score

Myth busting

  • It’s important to remember that people do NOT have one set credit score. Each lender will make its own judgement based on the information you provide and any past dealings you have had with them.
  • Lenders do NOT know any previous assessments of your credit score, any reclaimed PPI, council tax arrears or how much is in your savings account(s)
  • In some cases, you CAN still get credit if you have a low credit score. For example, you may be able to use a guarantor to borrow money (a guarantor is a person that contractually agrees to repay a loan or financial commitment if you cannot)

Further help and advice on credit scores is available on these websites:

Experian CreditScore Improvement Guide

Citizens Advice Guide

Money Saving Expert

The Resident Voice Index™ Cost of Living: Crunch Time report will be released next week. The report will include survey results from social housing residents on topics related to the cost of living crisis.