One of the six lender factors on your report is your Credit Activity. This is an overview of the total accounts you hold, your credit quality, credit lifespan, and credit searches. Don’t be thrown by all the wording; it’s a lot easier than you think.
Quite simply, this is your total number of agreements (credit and non-credit) from companies that report to the credit reference agencies. So, if you have two credit cards and a loan, then you have three. Agreements can be either borrowing accounts (mortgages, loans, credit cards and bank accounts that can have overdrafts) or non-borrowing accounts (mobile contracts, utilities, insurance and mail order agreements). The more agreements you have, the better.
Lenders like to see that you are trusted by other lenders and institutions, the same way you’ll choose to buy a mobile phone if you’ve read trusted reviews. They also like to see that you can juggle multiple agreements with ease. It suggests that taking another one on won’t be an issue for you. Ten or more agreements is top form here.
The number and mixture of your borrowing accounts determine how lenders rate you here. Credit agreements are like chess pieces. Each agreement has a different value and status. For example, someone with three credit cards isn’t necessarily better than someone with one mortgage. Hands down, the mortgage holder has the ‘king’ of credit agreements packing a positive punch. Regular and timely repayments of a mortgage, together with two credit cards is better still. If you can juggle a variety of credit types, it suggests excellent credit management and is viewed positively by lenders.
Payday loans carry the most impact on creditworthiness, but their impact is a negative one. The most impactful agreement you have is the one taken into consideration here, too. So, even if you have a mortgage, a payday loan will always override it and drag your credit quality rating down.
|Type of Loan||Type of Impact|
|Highest Impact||Payday Loan||Negative|
|Mortgage, secured loan||Positive|
|Bills and telecom||Positive|
Looking to borrow, but your most impactful agreement is a payday loan? Then your smart bet is to pay it off as soon as possible. You should then wait at least 3 months, so the impact dwindles. During this time, you can work on making sure you manage any other credit agreements well. Together, these measures will help improve your creditworthiness, placing you in a much better to access cheaper rates of borrowing.
Your credit lifespan is the age of your oldest account. Having a long-established bank account, with an overdraft, shows experience dealing with credit; which lenders love to see. Sometimes, lenders may also look at the average age of your accounts. So, it’s in your best interest to keep a longstanding account open and not close credit cards just because they’re not in use. By closing either of them, the average age of your accounts will drop. Closing your oldest account reduces your credit lifespan rating to the age of the next oldest account. All in all, it’s best to open as many accounts as soon as possible and allow them to mature. This increases both the age of your oldest account and the average age of these combined.
Finally, credit searches, the most misunderstood part of creditworthiness. Credit searches are split between hard and soft searches.
|Hard||Whenever a lender accesses your full credit file, they leave an entry. This is called a hard search and happens only if you apply for credit. It’s a mark that other potential lenders will see. Several hard searches in a short space of time leads lenders to assume you’re desperate to borrow and are being declined. But why? you may ask. Say you apply for a credit card from lender A, and then a week later you apply to lender B for another credit card. Even if you were successful with lender A, the credit card may not be visible on your credit file for 2 months or so. So, when lender B checks your file, all they can see is a hard search from lender A, and they will assume the worst, that you were rejected. A hard search stays on your account for 12 months, after which it drops offs your credit file. Most lenders however only check for hard credit searches over 6 months.|
|Soft||A soft search is when you check your credit report e.g. through a Credibble account or shop around for financial products on comparison sites. You can do this as often
as you want, as it will only ever show up as a soft search. Soft searches never affect your creditworthiness and are not visible to lenders.