You could be harming your credit score without even realising it. Limit your damage today by nipping these bad habits in the bud.
Are you fed up with your credit score holding you back? Are you sick of missing out on the best deals? And do you feel like you’re facing a never-ending blackhole trying to improve your rating?
Did you just answer yes, yes, and yes?
Then strap in. Because if you’re guilty of any of the following bad habits, that could be why.
1. Making endless applications
Each full application you make shows up on your credit history. In the eyes of a lender, making lots of applications for credit in a short space of time can make you look desperate for cash – and this could be a red flag that your money management isn’t the best.
There’s a simple solution to this, though. To avoid making lots of applications, see if you can check your eligibility before you apply. If you get the go ahead, you’ll be able to apply in confidence – instead of falling into the trap of blindly applying and getting turned away.
2. Not signing up to vote
Lenders see if you’re on the electoral roll to check you are who you say you are. So, to put it simply, if you’re not registered to vote they can’t do this as easily. And, if they can’t be sure of your identity, they can’t be certain it’s not financial fraud, which means they can’t be certain they’ll get their money back.
Don’t worry, getting yourself signed up to the electoral roll is super easy. Head over here to get the wheels in motion.
3. Missing a payment
When you take out a form of credit, you’re agreeing to repay the money you’ve been lent month by month. If it’s a credit card, this’ll be with at least the minimum payments each month. And if it’s a loan, you’ll pay pre-agreed instalments over a set period of time.
If you miss a payment it’ll leave a mark on your credit history and drag your credit score down, because let’s be honest, it doesn’t look great to potential lenders. All lenders mostly want is the reassurance they’ll get back what they lend to you – on time and without fuss, and a missed payment goes against this.
4. Using too much credit
Using too much of your existing credit can give your credit score a knock. Why? Because it hurts your credit utilisation ratio, making it look like you’re depending on money that’s not actually yours.
In Layman’s terms, your credit utilisation ratio is the difference between how much credit you’ve used vs how much credit you’ve got available to you.
For example, if you’ve got a credit card with a £2,000 limit and a £3,000 personal loan to your name and you’ve used £2,500 of them combined, your credit utilisation ratio would be 50% - which isn’t ideal.
As a rule of thumb, creditors like to see your ratio hovering around the 30% mark.
4. Closing accounts too soon
Closing down your accounts too soon can damage your credit score in a couple of ways. Firstly, it can increase your credit utilisation ratio and secondly, it can reduce your length of credit history.
For example, if you’ve got a credit card, you’ve had it for several years, and you’ve always cleared your credit in full at the end of the month, this’ll go a long way in showing current and future lenders you’re a reliable and responsible borrower, and a pretty safe bet.
Instead of closing the account and stripping yourself of all its advantages, it might be a wiser idea to keep it open and spend on it little and often, so you can reap the rewards you’ve built up.
6. Lack of variety
Another thing lenders like to see is diversity. Generally speaking, people with top credit scores tend to have a mix of credit accounts against their name - like a credit card, a personal loan, and a mortgage.
So, why do they like to see this? Mainly because it shows you can successfully juggle a number of different credit types. It’s particularly valuable to have both instalment credit (your loans and mortgages) and revolving credit (credit cards being the most common type) on your record, because it shows you’re responsible regardless of the repayment plan.
7. Not cutting ties with old connections
Last but by no means least are your financial associations. If you’ve taken out a joint loan with anyone, their financial history will then be linked to yours, which means lenders can see it when reviewing your credit file.
If they’ve got a spotless credit history this isn’t a problem. But if they’ve got a less than perfect credit history, their patchy record could actually hold yours back too. The reason for this is because the lender might worry you’ll step in and help your partner resolve their debts before you repay your own.
To see who, if anyone, you’re financially connected to, just head to the ‘Financial associations’ section of your credit report.