Your credit score is the numerical value which gives potential lenders and debtors an overview of your creditworthiness and financial position. Those with a good credit score tend to have a greater chance of being accepted for financial products such as personal loans, mortgages and payday loans from Uncle Buck.
So it is very important to maintain this score since any potential defaults or anomalies can cause it to fall and jeopardise your chances of obtaining much needed finance. Below, we give you 5 things you need to be aware of that could damage your credit score.
Failing to spot mistakes on your credit report
Your credit report shows a list of your credit activity in real-time and is something you can access through the likes of Experian and Noddle by paying a monthly subscription. However, it is not uncommon for there to be mistakes on your credit report. For instance, the likes of bankruptcies, IVAs and CCJs are only supposed to stay on your file for a maximum of 6 years but anomalies mean that they can sometimes stay there for much longer and affect your score.
In one example, there was a case of mistaken identity as Joanne Smith from Southampton was declined a loan because her credit report showed a default from someone with the same name. (Source: The Telegraph)
Elana Murray from Staffordshire was denied a mortgage because her partner had signed up to a new Vodafone account but his old account had continued to run for years and had been accumulating defaults without his knowledge.
It is therefore recommended to check your credit score regularly and several providers have free trials available and then it is just a small fee each month. With access to your credit file, you can see all your outstanding credit and debt and receive alerts by email and SMS every time there is a search footprint or default added to your account. This will also enable you to spot any mistakes and continue to maintain a strong credit score.
Making too many hard search applications
Every time you apply for a loan or credit product, a search footprint is registered on your credit file. This is a record to show that the provider has visited and reviewed your account.
Whilst it is normal to have around 12 searchers per year and they disappear after 12 months, having too many hard searches in a short space of time can make you seem financially stretched and desperate for finance.
This may occur if you are desperate for funds or have perhaps applied through a broker who has forwarded your application to several lenders at once who each run a search – something that you should be aware of.
There will not be any damage to your credit rating if you go through soft searches which vanish immediately. These type of searches are typically used when going through eligibility calculators, an application involving someone you have a joint account with (e.g spouse) and various car finance companies.
Not being included on the electoral roll
There are reasons why you may not be on the electoral roll such as being a tenant or a student. However, formally confirming your name and residence with the local authorities demonstrates that you are a real person with real living quarters. By being on the electoral roll, your credit rating and credibility as a loan candidate instantly improves. Joining the electoral roll is free and can be completed here.
Having too much available credit
If you have several credit cards and store cards, lenders may view this as risky because you potentially have access to thousands of pounds which you could use and make you financially stretched. It is advised to cancel and close the credit and/or store cards that you do not need or use regularly.
Sometimes our favourite department stores and supermarkets offer perks for opening a new account, but you have to weigh this up and how much you will actually use it.
In addition, it is considered better practice to spend less of your credit limit, rather than maxing it out each month. Again, this makes you look less reliant on your credit limit and in far better control of your spending.
Don’t miss payments
A credit default can impact your credit score and stay on your file for 6 years. Therefore, even just missing one payment is not worth the long term hassle of having a lower credit score.
To stay on top of your repayments, it is worth keeping a schedule of everything you owe each month and having the money put aside for repayment. If you are with a short term lender and they collect repayments by continuous payment authority, they should also send you reminders at least 3 days leading up to each repayment by email and SMS.
The important thing is that if you are struggling to keep up with repayments and you know this in advance, you should notify your lender as soon as possible. They may be able to offer you forbearance by changing the repayment date and giving you a bit more breathing space – which is better than letting the account go straight to arrears or default.
Overall, you will continue to maintain a strong credit rating if you pay all your bills on time, keep within your credit limits and continue to check your account regularly for any anomalies.