Keeping a healthy credit score

Most of us will have heard the phrase ‘Credit score’ in the past but you’d be forgiven for not having a clue what it really is or why it’s so important to have a ‘good’ score.

In a nutshell, your credit score is an indication of how financially healthy you are and the potential likelihood of being accepted for a loan, a credit card, a mortgage or a mobile phone contract. Lenders assess your future behaviour based on your past. Your credit score shows how a typical lender views you based on your payment history, applications, the credit you have and more including your income when making their decisions.

Most companies you deal with will share your payment history with credit reference agencies such as Experian, Equifax and TransUnion. When you apply for a loan or mobile phone for example, the lender will check with these credit reference agencies to see how creditworthy you are before agreeing to your application.

If you have a history of missed payments – for example, paying late or not at all – this will result in a ‘poor’ credit score which could put companies off giving you credit or if they do the rate of interest is likely to be higher.

Credit scores explained

See how your credit history affects your ability to obtain a loan, mobile phone or credit card and how you can improve your credit score with this video from Money Helper.

View the Money Helper website
How to keep your credit score in tip-top condition
Pay your bill on time It sounds obvious, but paying on time is a great way to prove to lenders that you’re capable of managing your finances effectively. If possible, pay your bills by Direct Debit – it can help you budget better for your bills and prevent you forgetting to pay on time. If you can pay your water bill by Direct Debit, we’ll even reduce your water bill by £5 a year, and it's really easy to set one up online
Register on the electoral roll If your name’s not on there, you’ll find it much harder to get credit. You can register to vote online -
Don't make too many applications for credit If you do, it can suggest to lenders that you’re desperate for credit. Remember, each time you apply for credit you leave a ‘footprint’ on your credit file and your lenders can see this.
Build a good credit history If you don’t have any real credit history of previous loans or credit agreements, you’re probably wondering how you build up a good credit score. Something as simple as paying your existing bills such as water and energy on time will build up a good payment history and make it easier to obtain credit in the future.
Bring your balance down If you already have credit cards, then make sure you stay within your credit limit as a minimum but aim to keep your balances less than half of your credit limit. If you spend close to or even over your limit then this can be seen as you being too reliant on credit.
Review your credit report regularly It’s good practice to keep a regular check on your credit report and look for areas that may need attention:

Check for mistakes on your file: something as simple as having the wrong address on your file can have an impact on your score. Make sure you check all the details and report any incorrect information.

Check for fraudulent activity: if something on your credit report is incorrect or doesn’t apply to you, i.e. if someone applied for credit in your name without your knowledge, contact the credit reference agency to have your file updated.
Manage high levels of existing debt Ideally you should pay off any outstanding debt before applying for new credit. This is because banks, building societies and credit card companies may not want to give you more money if you already have a lot of existing debt.
Don't withdraw cash on credit cards It’s expensive and lenders can see it as evidence of poor money management. Equally, beware of payday loans. Some mortgage providers simply won’t lend to anyone who has had one.
Don't ignore the problem Always contact your lender straight away if it looks like you can’t make a payment. It’s always best to discuss your circumstances as the company may have schemes that can help.
Check if you're linked to another person Having a spouse, friend or family member’s credit rating linked to yours through a joint account could affect your personal rating if they have a poor score. You should also look to end financial associations with ex partners.
County Court Judgments (CCJs) & Defaults No surprises with this one, but receiving any Court Judgments for debt will have a serious impact on your credit score. Likewise if a creditor registers a default against you for non-payment then this too will have a serious impact.
Stability is key Lenders like to see stable long term relationships in place as this can be evidence of good payment behaviour. Having a long term relationship with your bank for example is a good way of building your credit score. Although we would never discourage you from switching providers for things like energy, insurance, mobile phones etc. the frequency in which you do so may impact your score. In addition, lenders feel more comfortable if they see evidence that you have lived at one address for a considerable period of time.

Remember, if you’re struggling with your water bills please give us a call on 0800 072 6765 or complete our struggling to pay form. We’re already helping more than 100,000 of our customers out of debt through one of our support schemes.

There are also a number of organisations who can offer free independent advice to help you out of debt and it’s well worth contacting them if you’re struggling with your household bills.

How to check your credit score

If you’re a fan of Martin Lewis, then you’re probably already familiar with the Money Saving Expert (MSE) website. There is a free service available on their website called the Credit Club. Once registered for the Credit Club, you can obtain your full Experian credit report for FREE. There are lots of other free tools you can access on this website including products to check your Equifax and TransUnion reports, and also to see how likely you are to get the best credit card and loan deals.