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News: Experian is shaking up its Credit Score, millions will see theirs drop
Test your Credit Eligibility Rating!
 9 need-knows to become more irresistible to mortgage, credit card, overdraft, loan, mobile contract providers & more

The rise in the cost of living has left fiscal bags under many eyes. And less disposable income makes you less attractive to lenders, making acceptance for the cheapest products harder, which adds to your costs... rinse & repeat.

So, the job of understanding and managing your creditworthiness is a crucial piece of financial admin. A start point is the free MSE Credit Club or, easier, do it via the MSE iOS | Android App. It gives you a bespoke assessment of your personal credit situation.

Credit-checking stretches wider than many assume. It's used most times you get any form of 'credit' - not just obvious debts - but also many things you pay for in advance, such as mobile phone contracts and sometimes energy tariffs. 

I'm writing this today as the biggest UK credit reference agency has announced a change... Experian's Credit Score will soon be out of 1,250, not the current 999, and millions will see their ranking drop (more below). That sounds concerning, but actually...

In the UK, you don't actually have a Credit Score - each lender scores you based on its own wish-list of what is a profitable customer. What really counts is how you manage how lenders see you.

Confused? Don't worry, below I explain step-by-step including...

- Why you don't actually have a Credit Rating/Score
- Test your Credit Eligibility Rating
- Check your credit report for errors
- The top cards to (re)build your creditworthiness
- Cut credit card costs even with a poor credit history
- 11 tips to boost your Credit Score

1. You may've checked your Credit Score, but no single number dictates if a lender will accept you. 

While the three big UK credit reference agencies (CRAs) each offer a 'Credit Score', that's just their illustration of how a typical lender may see things. It's certainly a useful rough indication, but it's neither definitive nor used by most lenders. After all, they're not even all out of the same score: TransUnion's max is 710, Equifax's is 1,000 and Experian's 999, soon to be 1,250 (I wouldn't be surprised if the others rose soon too).

In practice, each lender does its own credit score based on its specific wish list of what makes a profitable customer. Usually, profitability correlates to low risk, but some specialist lenders see higher risk, and the higher rate they can then charge, as more profitable.

Crucially, these assessments are usually done using one or more CRAs' underlying data. That's why checking the file of data they hold on you (see point 4), not the illustrative Score, really counts.

2. So don't sweat small changes in your Credit Score, they mean little, though big swings do likely matter. 

I'm oft asked: 'Martin, my score's dropped seven points because I did x, y or z. Help.' In reality, that's pretty meaningless, as there's an element of art as well as science to CRAs' Scores, so don't try to micromanage it as each lender is different. Eg, close a credit card and your score may rise with one as you've less available credit, yet be less attractive to other lenders as they like signs of long-term loyalty. 

However, if you see your score drop substantially, perhaps drop a category (ignoring the coming Experian change below), that's likely a signal something's going on. It's also important to understand whether it's just a short-term Credit Score blip or a longer-term issue. Here are some examples of that, courtesy of Experian, though it always varies based on your personal credit history.

Small dips in score, lasting up to 3mths... 
A new credit account | Withdrawing cash on a credit card

Bigger drop in score, reducing after 3mths, oft gone after 6mths
Applying for lots of accounts in a short space of time

Bigger drop in score, oft disappears 6mths after it's fixed
Missed payments (arrears), only improved if all payments on time after

Significantly damaging long-term
Arrears can take two years to recover from and only if you manage to make up arrears. While a county court judgment or an insolvency (bankruptcy or IVA) will impact your Credit Score for up to six years, or possibly longer if subject to additional restrictions - getting credit will be more difficult.

3. Test your Credit Eligibility Rating (in my view a far better indicator than just a Credit Score). Product acceptance is data-driven, so it's important to know where you sit in the credit get-ability league table, and how to climb it.

A Credit Score alone doesn't do that as it misses crucial data, I believe our Credit Eligibility Rating, in the free MSE Credit Club, is a much better indicator (then again, I would, as I came up with it). It assesses you based on a combination of three key datasets to diagnose how strong your real-world credit power is. They are...

1. Your Credit Score. This is the credit reference agency TransUnion's illustration of how a typical lender would look at you, as discussed above. In our Credit Club, you can view your Credit Score for free.
   
   
2. Your 'affordability score'. Now this is where it gets interesting, and it starts to step over what a traditional Score gives you as...
   
   

   Credit Scores don't include the single most important stat lenders use when assessing acceptance - your income! 

   When lenders assess you, this is crucial. It's the reason you may be accepted for a £3,000 loan and rejected by the same firm for one at £10,000 - your Credit Score hasn't changed, you've just failed the affordability score. Ultimately, if you've a great history but no money, you will be rejected. You can view your affordability score for free in MSE Credit Club.
   
   
3. Current market conditions. Lending isn't just about your situation, it's about the market. We factor this in. Thankfully, slightly lower UK interest rates mean things are a little easier, so hopefully a few who have had past rejections may be accepted now.

To view your eligibility rating, use the Credit Club or, easier, go via the MSE iOS | Android App, there are many other top tools in there, too. 

A trio of measures many lenders assess you on

Within your credit and affordability scores, there are three calculations often used to assess you. We show you yours in the Credit Club, but it's worth understanding them, as they form a basis of the analysis we believe a decent number of lenders use, and they're a good way to think about the type of things they're looking at.  A) Debt ratio: the percentage you owe compared with annual income. In general, the lower the debt ratio, the better. This is for non-mortgage or student loan debt, such as cards & loans. Eg, £5,000 of card debt on a £40,000 income is a c13% debt ratio. To improve it: If possible, pay down any debt (or increase your income, though if you could, you'd probably be doing that anyway). Yet lenders do like to see a little debt used, so they can check you're doing it responsibly and paying it off - so a ratio under 1%, especially if you've little other credit data, can be negative. B) Credit utilisation: the percentage of available credit you currently use. Again, lower is better. Eg, if you've spent £100 on a credit card and you've a £1,000 limit, that's 10% credit utilisation. Though it isn't that important if you've a low debt ratio (ie, the fact you're using most of your credit isn't a biggie if it's only a small part of your income). It's when you've more significant debt that it comes into play. To improve it: To cut it, again, pay off some debt if possible.  C) Disposable income: the percentage of spare cash left over each month after essentials. This time, higher is better. Essentials include housing costs, debt repayments and other bills you and your dependants must pay. To improve it: With mortgages, cards and loans, these days lenders usually look at statistical modelling for what disposable income somebody in your situation is likely to have, rather than what you actually have - so frustratingly going frugal doesn't usually actually help much. Related: See our mortgage affordability tool.

4. The most important document is your Credit REPORT. Check it for errors at least annually, & before any big application. 

Credit reference agencies' credit reports (also called credit files) contain much of the data lenders use to assess credit applications. This includes electoral roll info, your credit products and whether you pay them on time, court judgments, and more (see what credit reference agencies know about you). 

Check yours regularly, line by line. For a general check, you can just look at one agency, as the data is usually similar, but check all three before a major application such as a mortgage. All can be done for free. Full info in free credit reports (including how to get cashback when doing this), but in brief...

a) Free TransUnion file & score: Via MSE Credit Club (which also shows you how to get the other agencies' files).
b) Free Equifax file & score: Via Equifax Basic site and ClearScore*, which are both free. 
c) Free Experian file & score: Download the free Experian app or apply for its statutory credit report.

When you're checking, look for any error, even a simple one, such as an unused but still open credit card account at the wrong address, or a default unfairly marked as paid late, as these can torpedo future applications - see how to dispute defaults.

5. Need a credit card or loan? DON'T just apply! That hits your file, use an eligibility calculator instead 

Almost every credit application goes on your credit file as a 'hard search'. Too many applications, especially in a short space of time, are negative - meaning the system is effectively anti-shopping around.

Instead, use an eligibility checker first, which shows your acceptance odds & sometimes pre-approval (ours gives you the odds for a range of top products). Eligibility calcs work by doing 'soft searches' which you see on your file, but lenders can't factor them in, so they don't impact your future creditworthiness. The current MSE eligibility calcs include...

If I've only got low acceptance odds, should I avoid applying? If your best chance is 20% and it's a crucial product such as shifting expensive debt to 0%, then 20% means two in 10 in your situation WILL be accepted, and you may be one of those. So the question is then, is it worth trying?

I think of building your creditworthiness a bit like saving for a rainy day. The key to that is knowing what the weather is. And, for me, overpaying on expensive debt means there's a financial storm - so I would certainly see if I can spend my creditworthiness on trying to cut my existing debt costs - that's what you've been building it up for! 

6. The top cards to build/rebuild your creditworthiness.

The two big reasons people get rejected for credit are:

• Their history makes them look a bad credit citizen, or
• There's not enough data on them. After all, would you lend to someone you knew nothing about, even if all seemed good?

In both cases, perversely, the best thing to do is get some borrowing, and use it carefully and deliberately, to start to (re)build a picture of yourself as a good credit citizen. The problem, of course... 

You need credit to get credit, but how do you get credit when you don't have credit? 

The answer is specialist credit (re)build cards designed to do this. They usually have horrible interest rates, yet provided you follow the instructions below you won't need to pay interest and can improve your score. 

Which are the top cards? Our Credit (re)Build Card Eligibility Calc lists many of them, best to go through that to see which you may be accepted for. A couple include some spending rewards such as... 

• Tesco Foundation card*, which gives Clubcard points but is 29.9% rep APR if you don't fully repay.
• Asda Money, which gives 'Asda Pounds' but is 39.8% rep APR if you don't fully repay (this isn't in the eligibility calc).

How to safely use these cards at no cost... Full help and options in our Credit (re)build cards guide but, in brief:

1. Do £50 to £100/mth of normal spending on it.
2. Repay IN FULL each month, preferably by Direct Debit. That way there's no interest (if you fully clear the balance, there's no charge; miss it by even a penny and you pay the whole month's interest).
3. Never miss a repayment or withdraw cash or bust your limit.
4. After up to a year or so, if you've followed these rules, and not messed up elsewhere, your creditworthiness should improve.

7. It's not just your credit report lenders look at... 

There are two other key sources of information.

• Any past dealings you've had with the lender. So a lender you've banked with before in any form will likely know you better - and, if you behaved well and were a good customer, that can boost acceptance.
  
  
• Your application form info. This is, of course, how they learn your salary, but it may also include why you want the credit, your job and more. Yet never lie. That's fraud. However, there are tips for what to put that may help.
  
  
• Yet Student Loans Company loans don't usually count as debt on your credit file. While in some very rare default circumstances they can go on credit files, in general terms they don't.
  
  In practice, as I often say, for many, student loans work more like a form of additional time-limited graduate income tax. And that's how lenders view them, as a reduction in your disposable income rather than an issue of creditworthiness. That can still impact your borrowing ability, though.

8. How to cut credit card costs, even if you've a poor credit history. 

The main tool is a 0% balance transfer, where you get a new card that pays off debt on existing card(s), so you owe it instead, but hopefully interest-free for a decent time. That means more of your repayments clear the actual debt, not just mostly cover interest, so you get debt-free quicker. So how do poorer credit scorers get one...

1. Try our Balance Transfer Eligibility Calc. This shows your odds of getting the top cards, which currently allow you to shift debt for up to 35mths 0% (3.19% one-off fee). It's always worth checking just in case. 
   
   
2. Look for special poorer credit scorer balance transfers. Within the calc (links go there), there's a range of poor credit scorer cards such as Capital One 22mths 0% (2.9% fee) | Vanquis 19mths 0% (3.48% fee) | Fluid 12mths 0% (3% fee). Their acceptance criteria vary, but all accept some with a history of past defaults, county court judgments and bankruptcies.
   
   
3. Beware the 'go-to' rate after. Cards for poorer credit scorers tend to have high APRs (interest rates) once the 0% ends. So check how that rate compares with the APR of your current card. If it is higher, ONLY move an amount you're sure you can repay within the 0% period, or you could be stuck paying more interest after. 
   
   
4. If you get a card, follow my Balance Transfer Golden Rules. In brief:
   - Clear the debt (or balance-transfer again) before the 0% ends.
   - Never miss the min monthly repayment or you can lose the 0%.
   - Don't spend/withdraw cash on the card - it isn't usually at 0%.
   - Avoid further borrowing. 

It's also worth seeing if you can better utilise and repay existing cards - for full help on that, see the credit card shuffle.