“So how is my credit rating actually calculated?”

If the average bank clerk had a pound for every time they’ve been asked that question they’d likely have enough to, well… open a bank.

But if you’ve ever quizzed your local bank about this and their answer has seemed a little vague, give them a break; they’re not doing it deliberately. Truth is, very few people know exactly how credit ratings are actually calculated. In fact, there’s not even one standard process.

There are three main credit referencing agencies: Experian, Equifax and CallCredit. Each of them has their own particular way of scoring potential borrowers. When you consider that the banks who use these companies for reference may have their own set of criteria they might be looking for at any one time, then it’s easy to see why the method used to decide whether or not you’re eligible to receive a loan or a mortgage might seem a little opaque.

However, some things we do know for certain. Your credit rating is made up of a number of variables that are fed into a complicated algorithm. The variables fed into this algorithm are essentially elements of your life; little data trails that your financial interactions with the world have left behind.

Therefore if you’re looking to build your credit rating, it’s useful to know which of these binary breadcrumbs are of most interest to the score-keepers.

Here are the key factors they consider, and some (potentially) surprising ones they don’t.

They don’t consider:

Your Salary 

We know. Strange hey? But to create a credit score the agencies aren’t actually interested in how much you earn, only how much you borrow and whether you’re paying it back. But don’t go taking that pay cut just yet – the bank and other lenders will almost certainly ask you to disclose your salary if you apply for a mortgage or loan.

But they do consider:

Your Payment History

Everything from utilities bills and phone contracts to payments on past loans and credit cards is fed into the credit scoring machine. Put simply – the more payments you’ve made on time the better. Late payments can be recorded as a negative and may last for up to six years on your report.

They don’t consider:

Your Savings

Again, slightly counterintuitive considering we’re talking about your ability to pay back money. But while we’d always recommend the approach of ‘spend what you don’t save’, over the opposite (and much more common) habit of saving what you don’t spend, it’s the spending you do that the credit agencies are interested in. So perhaps we should revise that well-worn advice to something like: ‘Spend only what you don’t save, but make a proportion of what you do spend visible to credit agencies via credit cards, bills registered in your name etc.’ Not quite as catchy, we agree, but good advice nonetheless.

But they do consider:

Whether You’re on the Electoral Role

If you’re not registered to vote you’re not only missing out on your chance to have your say in who makes decisions on your behalf – you’re doing yourself a disservice with regards your credit rating too. Show the banks you’re a participating member of society and it’s a big fat tick next to your name.

They don’t consider:

Declined Applications for Credit

This is one of the biggest misconceptions with regards your credit score. If you’ve been refused credit in the past it doesn’t necessarily count against you when you apply for credit in the future. When a lender requests your credit file they will only see the applications you’ve made, not whether you were accepted or declined. However, you might want to give it a bit of time to improve your credit score in between applications. As Einstein is reported to have said: ‘Madness is repeating the same action and expecting a different result’.

But they do consider:

Frequency of Credit Applications 

If the agencies see a person is making credit applications regularly, then there’s a high chance they’ll see them as desperate for cash and unlikely to pay their money back on time. This doesn’t just refer to when you’re looking to borrow money, but any type of credit agreement such as a new phone contract or insurance policy. There’s no definitive number as to how many credit applications is too many in a short space of time, but a good rule of thumb with credit applications, as with so many other things, would be ‘little and often’.

They don’t consider:

Criminal Records

That parking ticket back in 2014? Don’t worry about it. As long as you’re more fastidious about paying your bills on time than you are about avoiding double yellows then you’re credit rating will be fine.

But they do consider:

County Court Judgements

County court judgements are when someone takes you to court for money you owe them, or issues a court order demanding you pay them money. These will come up on any credit search and will count against you. In the majority of cases you’ll know when a CCJ has been made against you, but it’s possible that you won’t always hear. If you want to be 100% sure your name is clear you can request information from the Register of Judgements, Orders and Fines. There is a fee of £4.00 to check your file.

They don’t consider:

Rental Payments

It’s just not fair. You can pay your rent like clockwork for years, never miss a month… Hold on a second – it turns out…

They do consider:

Rental payments!

That’s right. Pay your rent with Credit Builder and every payment you make will help build your credit score, just as it would if you were paying a mortgage. It’s free to use, simple to set up and requires no maintenance whatsoever. Sign up today and start building your credit rating with Credit Builder.