How does my credit history affect my ability to borrow?

Your credit history is more important than you might think. Most people know that lenders take into account your credit score when deciding if you can borrow money from them, but did you know that lenders will also look at your wider credit history?

Your credit history gives lenders like us an opportunity to assess how reliable you’ll be as a customer and whether you’ll be able to comfortably afford to pay back the money you’re applying to borrow.

Having a clear understanding of your financial circumstances, such as total amount of current debt, what other financial products you have and if you make your repayments on time, help lenders make an informed decision.

In this article, we look at how your credit history can impact your ability to borrow.

What does ‘credit history’ mean?

When you apply for a loan, creditors will use a variety of factors to determine if you’re a good customer fit for their business. These factors may include how much borrowing you have outstanding, if you’ve defaulted on any payments or even how many times you’ve moved to a new house recently.

What does ‘adverse credit history’ mean?

If someone has adverse credit history, it’s likely they’ve frequently mismanaged their debt. Missed or late loan, credit card or mortgage payments are recorded on your credit report, and a history of missed previous payments may contribute to an adverse credit history.

Lenders such as personal loan providers, understandably, want to lend money to customers with a good credit history as this suggests you have a good experience of handling debt in the past. An ideal customer has low credit risk (you’ll be less likely to default on payments) and strong affordability (you will be able to comfortably make repayments without this putting strain on your finances).

Having adverse credit history suggests you could be at greater risk of making late payments or missing them altogether. This may result in you being offered higher interest rates or your application being declined.

Can I see my credit history?

Most of your credit history is detailed in your credit report, which is available for free from credit reference agencies.

Visit the main credit reference agencies’ partner websites to apply online: MoneySavingExpert’s Credit Club (Experian), ClearScore (Equifax) and Credit Karma (TransUnion).

Each of the main credit reference agencies will hold their own version of your credit report so it could be worth getting your hands on a copy of your report from all three to make sure there are no errors and all the information is up to date.

How does credit history affect my credit score?

Think of your credit score as a numerical representation of the information found on your credit record. If your record suggests you’ve got a history of frequently making late payments, or failing to make payments altogether, this will all be reflected in a lower credit score.

The good news, though, is that your credit report is a live document. It’s constantly being updated with new information, so with a bit of careful management you can work to ensure your credit report demonstrates to lenders that you’re a reliable customer.

Do remember that credit scores are not universal. Every credit reference agency, and every lender for that matter, uses their own scoring system. This is then used to assess the specific risk of an application (how likely you are to keep up to your repayments). That means there’s no definitive way to improve your credit score as each organisation will measure your circumstances in a different way. In many cases, the best thing to do is try to show a good history of debt management by only borrowing what you can afford, and ensuring any repayments are made on time each month.

How could my credit history affect my ability to borrow?

Your credit risk and affordability give lenders a good indication of how you manage money. This is often best assessed by reviewing your credit history.

If you have a good credit history, it’s more likely you’ll be accepted for a loan and may be offered better interest rates. This is because lenders can see you’ve managed debt responsibly in the past and are therefore more likely to pay back the money you owe on time.

If you have a bad credit history, you may be offered higher interest rates though your loan application may also be declined. Reputable lenders typically avoid working with people who may default on their payments and will likely charge a premium (aka higher interest rates) on any money borrowed as a result.

You may also be seen as a risk if you have no credit history at all. After all, if you’ve no proven history of managing debt well, how can lenders be sure you’ll make repayments reliably?

How can I build up my credit history?

If you’re concerned you don’t have enough of a track record, there are a few ways you can build up your credit history:

  • Register on the electoral roll
  • Open a bank account
  • Pay for utility bills via direct debit
  • Get a mobile phone contract (but only if you need one – never make a financial commitment on a product you don’t need)
  • Mix up your credit history. It’s usually beneficial if you can show you can manage both instalment credit (repaying a lump sum over fixed-rate instalments) and revolving credit (borrowing money up to a maximum limit, paying it back and then borrowing again)

Make sure you don’t miss any payments, as defaulted or late payments could have a much more negative impact on your credit score. We never recommend taking out any credit that doesn’t suit your lifestyle, or that may become unaffordable. It’s far better to wait for your credit history to build up over time, than to obtain credit solely to try and improve your credit rating.

Can taking out a personal loan impact my credit history?

Yes – taking out any type of finance, including a personal loan, will be recorded on your credit report and will be considered part of your credit history.

Therefore, it’s very important to consider whether taking out a loan is right for you.

A personal loan can actually help to improve your credit score by building your credit history and contributing to your credit mix, showing you can responsibly pay off debt in monthly instalments.

Of course, this only works if you make your loan repayments on time each month. Taking on debt you can’t pay back can harm your credit, making it much tougher and potentially more expensive to borrow in the future.

Do you think a personal loan is right for you? You could apply with Novuna Personal Finance. Borrow between £1,000 and £35,000, with competitive rates starting from just 7.4% APR Representative (£7,500-£25,000).

Apply now to receive an instant decision

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Novuna Personal Finance is a brand of Mitsubishi HC Capital UK PLC. Other brands under which we trade include Novuna Consumer Finance, Novuna Vehicle Solutions, Novuna Business Finance and Novuna Business Cash Flow.


Written by

Sophie Venner

Sophie Venner is a Yorkshire-based content writer specialising in crafting content for the financial services industry. She’s written over 300 articles on finance, but she’s covered everything from insurance to digital marketing trends. Her content has been featured in the likes of Semrush, Digital Marketing Magazine and Insurance Business. In her spare time, you won’t find Sophie far from a notepad and pen as she squirrels away trying to write a novel.

Wednesday 17th May 2023