Things That You Never Realised Are Hurting Your Credit Score

Our credit scores are important things. They’re the basis on which lenders decide whether or not to extend credit to you, whether that’s for something as small as a new mobile phone or catalogue account or as large as a mortgage.

Without a good credit score, you may be denied everything from a credit card to a car loan, or at the very least, be charged far more for being a risky lender. So it makes sense to ensure that your credit score is in the best shape it can be. To check, get a copy of your credit report and read it carefully.

You can buy a copy of your credit report online for just a few pounds from agencies such as Experian and Equifax. Once you have it, you can assess it and look for ways to improve it if your credit history is poor. There’s a range of things that will damage your score, some of which are quite surprising.

Late payments form an important part of your payment history. If you’re consistently late, your score will be damaged. Non-payments are even worse and lenders will not ignore them. If you ever anticipate that you won’t be able to make a payment, call the lender beforehand and explain. The fact you’ve shown responsibility and engaged with them pro-actively may mitigate the damage and they might offer you alternative payment terms.

If creditors think you won’t pay your bills, they charge your account off. This means that they anticipate never collecting the balance due and it’s one of the worst things that can happen to your credit score. It will also mean that your debt might be sold on and debt collectors could start contacting you. This will show as a collection status. Loan defaults are similar to charge-offs for credit cards and will register as a default on your credit report.

Perhaps the worst thing that can happen to your credit score, however, is a bankruptcy, which often follows a county court judgement (although a paid judgement is less serious than an unpaid one.) If you’re in serious financial difficulty, seek expert debt advice on your options, which may include an IVA (Individual Voluntary Agreement), which is a structured debt repayment plan.

Having a high credit-card balance will also hurt your score, as the second aspect of your credit rating is related to the amount of debt you already have. If you’ve maxed out your credit cards, you’ll have a debt utilisation score of 100% and this will spell trouble to potential lenders.

Strangely enough, closing old credit cards doesn’t help your credit score, as 15% of it is down to the length of your credit history, with longer histories scoring better. So keep one or two old cards open. Equally, if you close cards which still have available credit on them, you’ll affect your credit utilisation figure, which measures the amount of debt you have, against the limit you’re allowed to borrow to.

Another measure that some people don’t appreciate is that applications for credit and loans also affect your score. So avoid making too many applications within a short period of time, or your score will drop. Spread out any applications over time to avoid lenders becoming nervous.

A final surprising measure is your mix of credit, which accounts for 10% of your score. If you have all of your credit in the form of either just loans or just credit cards, this can affect your score, particularly if your credit history doesn’t give much additional information.