Which bumps in the road should you look out for?
Your credit score will determine how easy it is to borrow money. Whether you’re looking for a mortgage, a loan or a new credit card, your credit score has an influence on everything from whether you’re accepted in the first place to what kind of interest rate you can borrow at. So, it’s crucial to know what factors could negatively affect your credit score.
Too many credit applications
If you’re making multiple credit applications in a relatively short space of time and getting turned down repeatedly then this is likely to negatively impact on your credit score. It’s worth noting that there is a difference between the searches that lenders carry out when it comes to credit applications. A ‘soft’ search won’t have any impact on your credit score so you can do as many of these as you wish. A ‘hard’ search, on the other hand, is recorded every time. Find out which search will be made before you hit ‘apply.’
Bank account stability
Stability is a big thing for lenders and if you’ve had an account with the same bank for years then you’re much more likely to be a stable prospect than someone who has multiple different accounts each held for a short period of time. Long held accounts also prove a relationship with another lender that has worked out well. So, if your credit history shows the opposite – lots of different accounts and none held for more than a year, your credit score could be negatively impacted as a result.
Missing credit card or loan repayments
It’s not difficult to work out that if you don’t pay your existing debts then your credit score is going to go down. Even one missed payment will have an affect on your score so it’s important to make sure that if you already have debts you keep repaying them on time. The most serious impact of missed payments is where you haven’t paid a couple of payments in a row especially if these are on borrowing like secured loans or doorstep loans. This will be marked down as a default and carries a much heavier penalty than just missing a single payment.
Maxing out all your limits
One of the key influences on your credit score is the amount of credit you’re actually using from what is available to you. So, if you have a credit limit of £2,000 and you’re only using £500 then your credit score will be much healthier than if you’re using £1,999. Credit agencies state that you will usually get a ‘red flag’ on your credit score if you’re using more than 75% of your available credit. Anything under 50% usage won’t impact on your credit score.
CCJs, IVAs and bankruptcy
Lenders are less willing to allow people to borrow where there is evidence of CCJs, IVAs and bankruptcy. That’s because these show that, at some point in the past, you haven’t met the terms of a previous financial agreement. If you do have one of these on your record make sure you stick to the terms agreed. Once you’ve cleared the debt you can start to repair your credit score with something like a credit builder credit card.