Credit history tracks the reliability and the ability of you as the borrower to keep it up with the financial obligations, your payment patterns and how many other financial commitments you currently have. This has proven invaluable for financial institutions like banks and credit unions to assess the loan applications of the borrower’s ability to repay the loan.

Two credit agencies you may have heard of are Experian and Equifax. They have similar systems in place to quantify the score based on what is reported to them such as if the lender has received your loan repayments on time and you have kept your side of the lending agreement.

Every lender will have their own criteria to decide how much risk they would be taking on with each application, and the credit score will be one of many factors considered when assessing a loan.

This is my first loan, but will my lack of credit history be a problem?

This isn’t as big a hurdle as you would think.  If you do not have much of credit history then they are most likely to look at other factors to assess the application, but there are many ways to build up your credit history and one shouldn’t be worried about this process because you are assessed on your ability to repay your new financial commitment together with your other all outgoings.

When does credit go bad?

It is best to see credit score as your reputation for financial behaviour. If there are one or two problems with late payments with different banks, or with your mobile provider then that can be seen in isolation but if there are multiple defaults, County Court Judgements (CCJs) or a large number of credit searches performed by companies then that will lower your reliability in the eyes of the lenders that you want to do business with, including mortgage lenders.

How do I improve my credit score?

Keep it up: The most effective way is, of course, to keep it up with your repayments as per your loan agreement. If you are struggling to meet your obligations, please contact the lender directly to request if the current payment arrangement can be altered to make it more manageable. Your credit score is directly affected by what is being reported, so your relationship with your lenders is very important.

Keep it clean: If you’re hoping to take out a substantial loan in the future – for example, to buy a house or a new car – you’ll need to establish a track record of borrowing and repaying your commitments, which is measured by your credit score and your credit history. Always keep it clean.

Keep on checking: Check your credit file frequently to see if there is anything that is wrongly reported or not updated, and if you are linked to another person with bad credit. You can also reduce the amount of open accounts by cancelling any credit cards that you are not using. Also making sure you are on the electoral role will also improve your score.