Our Guide to Understanding How Credit Scores Affects a Loan Application

Flexy Loans guide to understanding how credit score affect loan applications
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Your credit score is your financial footprint and is an important factor in your overall financial health.

It is represented by a number, which tells a lender how likely you are to pay back a loan based on your past behaviour.

Every time you borrow money or get into debt, the bank or company you owe sends a report to one of the UK’s three credit bureaus and that information is used to calculate and update your credit score.

How you score influences what loans or financial products are available to you and how much interest you will pay if you decide to borrow.

Each credit bureau calculates scores using a different scale, but all follow similar principals to grade consumers.

Compare How the UK’s Credit Agencies Measure Credit Scores

RatingWhat it meansExperianEquifaxTransUnion
Max ScoreThe highest score you can get999700710
ExcellentYou will almost certainly be approved for credit and should have access to competitive interest rates and generous credit limits961+466+628+
GoodYou should have no problem being approved and getting access to reasonable interest rates and credit limits881 – 960420 – 465604 – 627
FairYou are likely to be approved fro credit but could face quite high interest rates and low limits721 – 880380 – 419566 – 603
PoorThere is a chance you could be approved for credit, but you could be charged a high interest rate and have a low credit limit561 – 720280 – 379551 – 565
Very PoorYou are unlikely to be approved for credit0 – 5600 – 2790 – 550

How Is a Credit Rating Calculated?

When calculating your credit score, an agency will examine different parts of your financial history to make a judgment on your likely future behaviour and decide your score.

Things that will be considered as part of this process include:

Your Credit History

The agency will look at any loans, credit cards, overdrafts, mortgages, bank accounts or any other kind of financial product you’ve held in the past six years for an indication of your behaviour.

Any missed, or late payments and defaults will negatively affect your score.

Electoral Roll

By looking at the electoral roll, the agency will be able to confirm your current address and see how long you have lived there.

Moving house frequently could be interpreted as a sign that you aren’t in a stable situation, and may affect your score.

Court Records

Agencies will specifically look for any bankruptcies or County Court Judgments filed against you; both of which are harmful to your credit score.

Certain Criminal Convictions

If you have a conviction for fraud, this could have a negative impact on your overall credit rating, as the agency may doubt the trustworthiness of the rest of the information they have about you on file.

Joint Accounts

When you open an account or take out credit with someone else, your credit profiles become linked to theirs.

If the other person has a poor credit history, you risk creditors interpreting this as a reflection of your financial behaviour.

Debt Utilization Ratio

In simple terms, this is how much of your available credit you’re using at any one time. If you have maxed out all your cards or are permanently living at the bottom of your overdraft, this may be interpreted as a sign that you could be struggling financially; and won’t do your credit score any favours.

Frequency of Credit Applications

When a credit provider looks up your credit file, it gets recorded on your report for other lenders to see.

If you make lots of applications over a short period of time, agencies can see this and could assume that you’re desperate for credit, and therefore a high-risk customer.

How Does It Affect Getting a Loan?

Your credit score influences your ability to borrow, and if you are accepted for credit, how much it will cost you.

When you apply for a loan or credit card, the lender will take your credit score into account along with other information, such as your income. They use this information to decide whether they should lend to you how much you can borrow, and how much interest to charge you.

From the perspective of the lender, there is a higher risk that borrowers with lower credit scores will default on their loans and not pay the money back.

For this reason, lenders charge higher interest rates to people with low credit scores as insurance against that risk.

If you have a very low credit score, you might not be able to get a loan from a mainstream lender at all; instead, you might need to look for a provider that specializes in loans for high-risk customers.

Products such as ‘bad-credit credit cards ‘and so-called ‘no credit check’ loans have low borrowing limits and high-interest rates, to protect the lender from the risk of not being paid back while still giving access to credit to people with poor credit scores.  

How Can I Check My Credit Score?

There are three main credit reporting agencies in the UK: Experian, Equifax and TransUnion. By law, they are obliged to give you a free copy of your credit score upon request. You can apply for this online or in writing.

However, you may need to pay to access a copy of your full credit report, which includes a comprehensive credit history. Some providers offer a free trial, which allows you access your live report for a limited time before being charged for a paid subscription to the service.

If you are planning to apply for credit or have not looked at your score for a long time, it could be a good idea to see what the credit agencies have on file for you. Banks may use just one of the agencies, or a combination of the three when making lending decisions.

Can I Challenge My Credit Score?

If you find something on your report which you believe is inaccurate, you can file a ‘Notice of Dispute.’ 

with the agency, either online or in writing. You will need to provide a short explanation of why you think an item is wrong and may be asked to provide evidence to support your claim.

The agency will have 30 days to make a decision, and during this time the item in question will appear on your report as ‘in dispute’ to any lenders who look at your file.

Does Where You Live Affect Your Credit Score?

There is a common myth that says where you live affects your credit score; that if you are moving an address in an ‘undesirable’ neighbourhood or live under the same roof as a bad debtor, your chances of getting credit to start to slip away. This isn’t true.

While your address does factor into your credit score, it does not have such a direct effect as this.

Some creditors interpret moving house frequently as a bad sign; they may assume your living situation is unstable, making you a high-risk debtor. The same applies to have multiple addresses linked to different debts and accounts on your credit file.

Creditors prefer it when lenders can be traced to a single address. For this reason, it is important to update your address with creditors if you move house and register to vote at your home address, as the electoral roll is often used by agencies to confirm the address on your accounts.  

The only way your credit can be affected by the people you live with is if you are financially linked with them. When you open a joint bank account or take out a mortgage with another person, your credit file is affected by the credit history of anyone else on the account.

So, if you opened a joint account with flatmates to manage household bills, your credit report could be influenced by their credit histories.

Average Credit Score by Region of the UK

RankingRegionAverage Experian Credit Score
1South East795
2South West788
3Greater London784
4East of England783
5Norther Ireland770
6Scotland & East Midlands763
7West Midlands754
8North West743
9Yorkshire & The Humber738
10Wales731
11North East727

Is It Still Possible to Get a Loan With Bad Credit?

Even with a below-average credit score, it’s possible to get a loan- but don’t expect the most competitive interest rates.

If you know your credit score is less-than-perfect, it might be a good idea to mention this to your lender before starting a formal application.

If an application gets rejected, it shows up on your credit file- and too many rejected applications could harm your score further. If you ask, some lenders might be willing to see how likely you are to be approved by running a ‘soft’ credit check. This doesn’t show up on your file but lets the lender see your score and some other basic information, which they can use to advise you

Your credit file contains your financial records from at least the last six years, so even after you’ve reformed bad habits, it can take a while before your score recovers.

If you can manage it, wait until your new spending behaviour has had time to work its magic, so your credit report is in better shape before you make new applications.

If that isn’t an option, there are specialist lenders that offer credit to people with bad credit scores. However, these are likely to be expensive and for relatively small amounts of money.

How Can I Quickly Boost My Credit Score?

There is no substitute for positive financial habits- but if you’re ready to start improving your credit footprint, there are some simple steps you can take;

Join the Electoral Roll

It takes minutes and assures lenders your identity and address are up-to-date and genuine. You can register here.

Make Sure Your Current Address Is Listed on All of Your Cards and Bank Accounts

This is another simple step that can tidy up your report and appeal to credit agencies’ cravings for consistency

Don’t Close Credit Cards Once You’ve Paid Them Off

Credit agencies look at your debt utilization ratio when working out your score. By leaving your credit card accounts open once they are paid off, it signals that you don’t rely on your credit for day-to-day expenses.

Try Not to Use Your Overdraft Facility

If you are constantly living at the bottom of your overdraft, credit agencies might infer that you can’t afford to repay your existing debt. Instead, try only to use some of your overdraft, some of the time and repay it as soon as you can afford to.

Pay Your Bills on Time

This might seem obvious, but paying your bills on time is an extremely important aspect of maintaining a healthy credit score.

Dispute Any Errors on Your Credit Report

If you don’t agree with any of the information on your report, you can write to the agency, provide evidence and ask for the mistake to be removed.

How Can Flexy Loans Help?

Here at Flexy Loans, we have partnered with some of the UK’s leading Lenders.

They have already helped thousands of people get loans already, and they can do the same for you.

Choosing a loan broker like us (we don’t charge any fees) means our application process matches you with the best loan available to you.  All lenders we recommend are regulated by the FCA, which gives you an additional layer of protection.

To apply and see what loan is available to you, click on the below and answer the questions

Len Burgess
Len Burgess
Len Burgess is a 15-year digital financial entrepreneur. When he isn't writing or creating financial websites he is either watching cricket or football and spending time with his family, talking about football and cricket
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