Posted: 09 / 04 / 2024

Understanding the dynamics of credit scores can feel like a black hole with no straight answers and seemingly a myriad of categories that can impact it.

It can seem like an impossible task to improve it as you don’t know where to start, so here we break down credit scoring and give some information on how you can improve yours.

Why bother improving your credit score?

A good credit score is fundamental for individuals personally and in business. It can be the difference in obtaining competitive finance and can also influence your suppliers whether they work with you or the terms they will give you. If a creditor perceives you as a good risk, you’re likely to get extended payment terms, whilst if a poor risk, often you’ll have to pay upfront for goods and services.

How is your credit score calculated?

Your credit score is made up of five individual objects that are mixed together to create your overall credit score. Some affect your score more than others but it’s important to look at each of them:-

  1. Payment history
  2. Amounts owed
  3. Length of credit history
  4. New credit
  5. Credit mix

Why might your credit score have reduced?

A credit score is a dynamic number that reflects your financial reliability. It fluctuating can have a serious impact on your success and so understanding what reduces your credit score is imperative.

This is not an extensive list, but reasons for your credit score dropping, could be:-

  1. You have missed credit payments
  2. You recently applied for finance
  3. You’re using more credit
  4. A credit limit reduced
  5. You cancelled a credit card
  6. There is inaccurate information on your credit report

1. You have missed credit payments

Payment history is a large component of your credit score. Late payments not only reflect poorly on your financial responsibility but also signal risk to future lenders. The impact of a late payment can vary based on how late the payment is, how often you’ve been late, and how recent the late payment was.


You can set up payments for regular bills using standing order / direct debit which avoids any oversight. If you are due to miss payments due to your financial situation, speaking to the creditor before the payment to negotiate a payment holiday is a great option. A lot of people bury their head and ignore the problem, but this is the worst possible thing to do!

2. You recently applied for finance

When you apply for finance, a lender will typically carry out a “hard credit search” on you. Each hard search reduces your credit score slightly and can stay on your credit report for a 2 year period.


Minimise hard credit searches. It might seem the best idea to make lots of applications and choose the best offer but getting those offers impacts you – use a lenders pre-approval terms to gauge the best lender for you and then make one application. You can speak to lenders and ask for a soft credit search to be carried out initially – this doesn’t show on your credit file.

3. You’re using more credit

A lender will look at your credit utilisation versus the total amount of credit available to you. If your utilisation increases, it may alarm creditors that your reliance on credit is increasing and thus a reduction in your financial stability.


It sounds simple, but make sure you are borrowing money for the right reasons. Keep an eye on your borrowing and if you’re able to, bring down credit card balances regularly.

4. A credit limit reduced

If a creditor reduces your credit limit, it is a sign that they have completed a risk-assessment and it has been negative. This can have a ripple effect where other creditors see this and make a judgement based on the other creditor.


Maintain good open communication with all creditors. Even if you don’t need anything, keeping in contact is recommended. If you see a decrease, question it and look to have it brought back up. Sharing regular financial information with creditors also helps.

5. You cancelled a credit card

Don’t close credit cards, as a rule it hurts more than it helps. Even if you don’t plan to use it, closing a credit line down reduces the overall credit available to you which can then impact on point 3. Closing it down also removes payment history so will make good payment history disappear!


Keep the credit card open with a nil balance. It might seem “untidy” but it’s much better for your credit file to have credit available that is not utilised. Sometimes if you don’t use credit for a while, the creditor may close the account down automatically – keep communication open and advise you would like it to remain open.

6. There is inaccurate information on your credit report

Inaccurate information on your credit report such as late payments, links to other parties, are much more common than you would think. These issues obviously reduce your credit score and occur from clerical errors, and often where two people with the same name are matched.


Review your credit reports regularly from major credit bureaus. If you find inaccuracies, file disputes with each bureau. Make sure to follow this up to ensure the mistakes are rectified, and your credit file is returned to what it would have been if this error hadn’t happened.

What is considered a good or bad credit score?

Credit scores range from 0-999. Different companies are looking for different things from potential customers so this isn’t as simple as it sounds. As a guideline though:-

  • < 600 is considered poor
  • 600-700 is considered average
  • 701-800  is considered good
  • 800-900 is considered very good
  • 900+ is considered exceptional

How to increase your credit score

Improving your credit score can take time and consistent effort and discipline. By understanding what impacts your score and following some of the above advice, your credit score will slowly increase. Here are some further quick tips to ensure your credit score is moving in the right direction:-

  1. Register on the electoral roll at your current address. This helps companies confirm your identity.
  2. Build up your credit history – Use a credit card and pay it off each month
  3. Pay your accounts on time and in full each month.
  4. Keep your credit utilisation low. If you are at your limit each month, take a second line of credit so that your utilisation stays under 50% of your limit.
  5. Sign up to a credit reference agency and keep an eye on your credit score – they often provide quick tips to improve your own credit score.

Need more insight or help? Find your local expert now…

As one of the fastest-growing mid-tier business advisory firms, Sedulo have a wealth of advisory options open to entrepreneurs.


Leyton Jeffs
Head of Private Clients

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Artin Namoni
National Head of Tax

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Jonny Kirk
Corporation Tax Manager

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Brad Britch
Personal Tax Manager

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