Whether you’ve taken a new job, been given a promotion, or had to change your circumstances, you might be wondering if a change in your salary or income will impact your credit score. In fact, this is a really common question! Loqbox brings home the bacon with everything you need to know about your pay and your credit score.
Wait, what’s your credit score and why should you care?
Your credit score is generated by the top three credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion. They collect data about your credit history so that it can be checked by lenders when you make an application for things like mortgages, loans and credit cards.
You can actually use one of these recommended links to check your credit score with all three of the three main CRAs in the UK. It’s free and taking a look won’t affect your credit score!
ClearScore (uses Equifax data)*
Credit Club (uses Experian data)
Credit Karma (uses TransUnion data)
*So, full transparency. If you sign up for ClearScore using this link we get a small commission.
Checking your credit scores is a quick way for you to look at your credit reports and see how likely it is that lenders will give you credit. And whether they’ll give you favourable interest rates or not. Generally, the higher your credit scores, the better. But there are lots of things that can make it go up and down. So, do CRAs look at your salary?
Does your salary affect your credit scores? What about other income?
No, your income or salary have no direct impact on your credit score. Experian, Equifax and TransUnion don’t list how much you earn on your credit report and therefore it doesn’t move your credit score up or down.
You might be surprised about how detailed your credit report actually is. A lot of information is held about you. But they don’t keep everything.
Not only is your income not listed on your credit reports, but neither is your employment,marital status, ethnicity or religion. So none of these things should impact whether you are able to get credit. The reason that these details are left off your credit score is so that credit checks are fair and free from prejudice.
This also means that people who have higher incomes don’t get treated differently to those who are earning less, and everyone’s credit scores can be improved (or decreased) based on how responsibly they use credit.
How does income affect credit scores?
A big or sudden change to your regular income can indirectly impact on your credit score if you stop paying your bills and loan repayments. Although your employment status and income are hidden from your credit reports, and don’t change your credit scores, losing your income through redundancy or contract termination can have a really big impact on your life.
If your circumstances change and you find it difficult to keep up with your regular outgoings, you could start to miss things like phone bills, loan repayments, or your rent or mortgage.
This type of activity would be reported on your credit history and can have a negative effect on your credit score. You should try to avoid missed payments, especially as they stay on your credit report for six years.
Does debt to income ratio affect credit scores?
It can do, yes. It’s important to remember that when you apply for a credit card, mortgage or loan, the lenders don’t only check your credit reports. They might also ask you to prove how much your income is and how much you spend on your recurring debt payments to measure your affordability. This is also known as your debt to income ratio (DTI).
Your DTI ratio is the percentage of your income that goes towards your debts. To work out your DTI, just divide your total monthly recurring debts by your total monthly income. So, if you had £1,600 recurring debt payments and your income was £2,900, your DTI would be 0.55 or 55%. A good DTI to have is around 20-30%.
If your DTI is higher than 50% you should really think about clearing some debts, especially if you are thinking about taking on any more. Your credit score isn’t affected by your DTI, but lenders may decide not to offer you credit if the percentage is too high.
My credit score’s low, what can I do?
Even though your salary and income don’t affect your credit score directly, there’s still plenty of things that do to improve your score. So, if you checked your credit score using the links above and it was lower than you were hoping it would be, what can you do about it? You can read more about how to improve your credit score here.
Building your credit score takes time, but for our quickest way to improve your credit, you could consider getting Loqbox.
Our full members who use Loqbox Spend, Loqbox Save and Loqbox Rent at the same time have seen their credit score increase by up to 300 points in the first three months*. It’s just £2.50 a week for our full Loqbox membership, find out more here.
*Improvements to your credit score are not guaranteed.