How much will my credit score change if … ?

How much will my credit rating go up or down? That is a very common question. But it’s often tricky to answer!

This article has 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 after six years, your score won’t improve as much because there are still two remaining.

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. Lenders don’t actually use the calculated credit scores! So I’ve added some notes about how lenders tend to think about these situations.

How balances & credit utilisation affects your credit score

“Credit utilisation” shows how much of the credit limit that you are using at the moment. 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. All the numbers in this article are from Experian:

• 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.

Do overdrafts count in this calculation?

No, Experian doesn’t include overdrafts. But the amount you are using of your overdraft is counted as part of your total unsecured credit.

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 & 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 many CCJs, there will already be a debt with a default on your record, in this case a CCJ then increases the harm to your credit record, but not by as much as 250 points.)

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. (There is one exception here – a CCJ is deleted completely if you pay it in CCJ in full within a month of the judgment.)

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 a while.

Four small wins

Once you have big problems on your credit record such as defaults or CCJs or an IVA, only time will get rid of those “black marks”.  You can’t speed this up and often the key thing is to stop any new problems being added.

But here are some small ways to boost your credit score:

1. Stop applying for credit! Not making any credit applications for 6 months adds 50 points to your score.
2. Keep a credit card for more than five years. This adds 20 points to your score. But if you are trying to decide which card to close, always keep a card with a lower interest rate – that’s more important than 20 points on your credit score.
3. Register to vote. It’s a simple way of adding 50 points to your score.
4. Pay for car insurance in monthly installments. This can increase your score by 20 points. But do check what your insurer charges. Many people are paying over 20% interest to pay monthly, with a few firms charging over 50% so this can be incredibly expensive!

There is also Experian’s Boost facility. That can add up to 66 points to your Experian Credit Score – but it isn’t clear how many lenders will actually use this new Boost data.

Four things that DON’T affect your credit score – are you surprised?

1. checking your credit score – this doesn’t affect your credit score and lenders can’t see that you have done this either.
2. 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.
3. Someone else at your address having bad credit. You are only financially linked to someone you have a joint loan, mortgage or current account. If you aren’t, it doesn’t matter how many letters from debt collectors arrive if they aren’t for you. Have a look at your credit reports – those problem debts won’t be showing.
4. From summer 2022, BNPL data such as Klarna purchases will start to be shown on some credit reports. However these will be ignored when calculating your credit score.  Even when you miss a payment and a lender such as Klarna adds a late fee, this will still not affect your credit score – but as the missed payments will show on your credit record other lenders may decide not to give you credit.

Equifax and TransUnion – the other two credit reference agencies

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

Equifax and TransUnion are the other two major credit reference agencies in Britain. They have broadly the same approach as Experian, but their credit scores have a different maximum (if you think this is bonkers, I agree!):

• Experian’s maximum score is 999
• Equifax’s maximum score is 1000  (it used to be 700 – it was changed in 2021.)
• TransUnion’s maximum score is 710.

So a change to your score for any particular factor is going to be smaller on TransUnion than Experian. And a 500 score on Equifax is poor but it’s good if you are looking at a Clearscore report!

The major lenders like the big banks report to all three credit reference agencies. But smaller lenders may only report to one or two. So you may find that your scores and reports are very different on different reports.

If you are worried about your credit score you should check all three credit reference agencies. Luckily you can do this for free, see The best ways to check your credit score.

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