How much will my credit score change if … ?

How much will my credit rating go up/down is a very common question and one that is often tricky to answer. But here are some guideline numbers from Experian that may help.

These are only indications – your credit score may not go up or down by this much. They assume nothing else has changed on your record. They also apply to single issues. If you have two defaults already, getting a third won’t be as bad … and if one of your three defaults then drops off, your score won’t improve as much as if it was the only one.

If your main concern is wanting to get credit at a good interest rate, what matters is how each lender will assess your credit history. They don’t actually use the calculated credit scores! Some lenders mind a lot about things which don’t make a difference to your credit score. So I’ve added some notes about how lenders tend to think about these situations.

How credit utilisation affects your score

“Credit utilisation” shows how much of the credit limit that you are using at the moment. So if you have a limit of £5,000 on a credit card, your utilisation would be 20% if your balance is £1,000 and 80% with a balance of £4,000.

Credit scoring gives you extra points if you are using a low amount and deducts points if you have a high utilisation:

• if your balance is under 30% of your limit, you gain 90 points.
• a very low balance is even better – less than £50 or zero will gain an extra 60 points – so that’s the boost you get if you clear your balance each month.
• using over 90% of your limit loses you 50 points.
• a very high balance of over £15,000 will lose an extra 50 points.

The size of the limit itself also affects your score, but not by as much:

• A high limit of over £5,000 adds 20 points to your score
• A very low limit of less than £250 loses 40 points.

Is it the utilisation for each card or overall that matters?

It’s both! So getting the utilisation for one card below 90% – or even down to zero – won’t have major effect on your credit score if you have large balances and over 90% utilisation on your other cards.

What do lenders think about credit utilisation?

Most lenders don’t like you to have maxed out your credit cards, it suggests that you are struggling, so why would they want to lend you more? Do some lenders prefer you to have a balance, not clear your card each month? That may be an urban myth…

Lenders usually have an extra piece of information here that doesn’t show on your credit record – your income, because you will typically have been asked for this on your application. If you have one credit card with a low limit and you are using most of it but your income is high, you can probably get car finance at a good price. But if you have borrowed a lot compared to your income you are going to struggle to get offered more credit at a good rate.

The effect of missed payments, defaults and CCJs

• A missed payment on a bill or debt would lose you at least 80 points.
• A default is much worse, costing your score about 350 points.
• A CCJ will lose you about 250 points.  For most CCJs, there will already be a debt with a default on your record, so this hit is in addition to the harm caused by the default.

It doesn’t matter how large the size of the problem debt is. A £25 mobile bill has the same effect as not being able to make the repayments on a loan of ten thousand pounds.

These problems are seen as less serious if they are older. Once a default is more than two years old, the negative effect falls to 250 points, then when it is over 4 years old it drops a bit more to 200 points.

These hits to your credit rating aren’t reduced when you start to pay the debt, or even when it has been fully repaid… see below.

What do lenders think about defaults?

Lenders vary a lot in their attitude towards defaults:

• high-cost lenders such as payday loans and guarantor loans won’t automatically reject your application if you had a default a couple of years ago, even if it hasn’t been repaid – they are targeting people with bad credit;
• you may be rejected by some best buy balance transfer deals if you have any defaults or missed payments, even if these are old and repaid;
• some mortgage lenders will reject people with any defaults, repaid or not, but others may offer a reasonable rate of interest if your defaults are old and they have been settled for more than a year.

Two things that DON’T affect your credit score that may surprise you

• checking your credit score – this doesn’t affect your credit score and lenders can’t see that you have done this either.
• paying off a debt that has defaulted. Most people don’t believe this, but it’s true… your credit score only looks at what has gone wrong in the past, not how you are trying to put it right. But of course, repaying the debt prevents any chance of getting a CCJ, which would mess up your credit score for another six years… See Will paying a default improve my credit rating? for details.

Some small wins

• Having a credit card account for more than five years adds 20 points to your score. But if you are trying to decide which card to close, I would always keep a card with a better interest rate, even if it isn’t so old as 20 points is such a small amount.
• Being registered to vote is a simple way of adding 50 points to your score.
• Paying your car insurance in monthly instalments can increase your score by 20 points. But before you think this is an easy way to get a small boost, check up what you will be charged by your insurer. See Avoid insurance rip-offs – most people are paying over 26% interest to pay monthly, with some firms charging over 50% so this can be incredibly expensive!

What about Equifax and TransUnion?

This article has been all about Experian’s credit score calculations.

Equifax and TransUnion (the new name for Call Credit, often referred to be the name of their free report, Noddle)  are the other two major credit reference agencies in Britain. They have broadly the same approach as Experian.

The size of the credit score changes will be different though, because their credit scores have a different maximum:

• Experian’s maximum score is 999
• Equifax’s maximum score is 700
• TransUnion’s maximum score is 710.

So a 500 score on Experian is poor but it’s good on Equifax. And a change to your score for any particular factor is going to be smaller on Equifax and TransUnion than Experian.

If you think this is bonkers, I agree…

If you are wondering which is the “best” score, read Experian or Equifax – which is better?.

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