Your credit rating

Before a lender will issue a credit card, they have to determine the risks involved. When applying for a card, your credit rating will provide a potential lender with details of your payment history, and any other relevant information, so they can make an informed decision. Limited information can also affect your rating, as, with little or no credit history to assess, it will be difficult for lenders to determine whether or not you're a risk. Read our guide below for more information on how your rating affects you, how you can check your score and, most importantly, how you can improve it.

What is a credit rating?

When it comes to applying for a credit card or loan, your credit rating (also known as 'credit history' or 'credit scoring') will tell a particular lender a lot of what they need to know about your finances – from what you've borrowed to how much you've paid back and when – all of which influences your application. Your rating works as a tool that lenders can use to predict your future borrowing habits, and so work out how much of a risk it would be to lend you money. Your credit score can be affected by everything from mortgages and other credit cards to your mobile phone contract, but each lender has their own set of criteria for deciding whether or not to grant you credit, so a refusal from one doesn't necessarily mean a refusal from all.

What does a credit rating tell lenders about the customer?

A credit rating provides lenders with data on a potential customer's borrowing habits, helping them to assess the level of risk involved in lending. Your rating includes:

  • Your name, date of birth, current address and any previous addresses.
  • How many accounts and credit cards you have, and how long you have been using them, which can give your lender a good idea of your payment history.
  • Details of any court judgements or bankruptcies against your name, which, along with records of late payments, will stay on your record for up to six years.
  • Details of anyone who's linked to you financially – such as a spouse you hold a joint account with.
  • Whether or not you are on the electoral roll.
  • Whether you have ever committed fraud, or been a victim of identity theft and had fraud committed in your name. This information sits in the CIFAS section of your report - you can read more about this section of the report on the CIFAS website.

As of summer 2013, Experian, one of the UK's three leading credit reference agencies (the others are Equifax and Callcredit), also started including rent payments on credit files – so whether or not you pay your rent on time can also affect your ability to get credit.

How is it calculated?

Different lenders will take different parts of your report into consideration. Tesco Bank uses a credit reference agency that provides all of the information stated above.

How can you check your own credit score?

Everyone has a right to view their credit files (known as your 'statutory credit file') under the Consumer Credit Act. This can be done online via the three leading credit reference agencies, Experian, Equifax or Callcredit. Callcredit also offers a free, basic credit checking service under the name Noddle. Checking ahead of major credit applications could reduce your risk of rejection.

How can you improve your credit rating?

The easiest way to improve your score is to spend wisely and make payments on time. Making the minimum payment won't harm your credit score, however the ratio of your credit card balance to your credit limit is factored into your credit rating (referred to as 'credit utilisation'), so if you are near the top end of your limit, you may want to consider paying more than the minimum each month to try to clear some of the balance more quickly. Successful credit card holders spend what they can afford – and if you can pay the full balance each month, you won't be charged interest on an outstanding balance. Setting a budget can be beneficial to avoid missing a payment, or paying late, both of which will damage your credit rating. The good news is, if you always pay on time and in full, this could help to boost your score.