credit score

15 Things That Can Lower Your Credit Score

We conducted a survey a while back which uncovered an awful truth about the UK public, most of us don’t understand our credit rating.

That’s not to say we don’t know what it is, but rather most people lack the knowledge to understand what affects it in a positive and negative way.

It’s hardy surprising really when we have so little financial education in this country, yet it is so vitally important in our everyday adult life.

In this guide I’m going to show you all the ways you could damage your credit rating to make sure you can avoid making crucial mistakes.

Paying late

Thirty-five percent of your entire credit score is made up from your payment history.

Consistently being late with your credit card payments will damage your score.

Set up a DD to stop you forgetting to pay on time.

If you’re worried about paying the full amount all at once, speak with your provider and ask them to just take the minimum amount.

If you want to pay more than the minimum, and I would always advise you do, you can always call up and pay more over the phone.

Not paying at all

Ignoring your credit card payments is worse than paying late.

With each passing month you ignore your bill, the closer you’re are getting to having the account charged off.

Having an account charged off

If your creditor doesn’t think you’re going to pay your credit card bills at all, they will charge-off your account.

This account status is one of the worse things that can happen to your credit score.

Having an account sent to collections

Creditors will often use third-party debt collectors to try to collect payment from you.

Your creditor may send your account to collections before or after charging it off.

A collection status on your credit file shows that the creditor gave up trying to get payment from you and had to hire someone else to do it.

Defaulting on a loan

Loan defaults are pretty similar to charge-offs.

A default shows potential lenders that you have not fulfilled your obligation to pay the loan back.

Bankruptcy

Bankruptcy will seriously affect your credit score.

Seek alternatives first before you go ahead.

It’s a long way back for your credit score to recover.

Having your property foreclosed

If you fall too far behind on your mortgage repayments your lender will foreclose on your home.

The late payments will negatively impact on your credit score, making it much harder to obtain mortgage loans in the future.

Getting a judgment

This is a killer for your credit score.

Not only does a judgment show that you avoided paying your bills, but the court also had to get involved to make you pay back your debt.

While they both damage your credit score, a paid judgment is better than an unpaid one.

High credit card balances

The second biggest factor of your credit score is the level of debt, measured by credit utilization.

Having high credit card balances (relative to your credit limit) increases your credit utilization and will decrease your credit score.

Maxed out credit cards

If your credit card is maxed and over the limit, it makes your credit utilization 100%.

This is bad news for your credit score.

Closing credit cards that still have a balance

If you close a credit card that still has a balance, your credit limit drops to £0 while your balance remains.

This makes it appear like you have maxed out your card and will cause your credit score to drop.

Closing credit cards with available credit

If you have a few credit cards, some with balances and some without, closing the cards without balances increases your credit utilization.

Applying for credit several times

Credit checks account for 10% of your credit score.

Making several applications for credit within a short period of time will cause your credit score to drop and can make you appear desperate to potential lenders.

Always keep applications to a minimum.

Having only credit cards or only loans

Mix of credit is 10% of your credit.

When you only have one type of credit account, either loans or credit cards, your credit score could be adversely affected.

This usually only comes into play when you don’t have much credit history on your credit file.

Final word

Stay away from these common mistakes and your credit score should flourish.

If you’ve never had a credit agreement and are struggling to be accepted you may want to consider Creditbuilder™.

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