7 things you didn't know could affect your credit score
Most of us know that skipping payments will damage our standing with credit reference agencies - but there are other, less obvious factors we should be aware of too. If you're trying to boost you credit score, here's what to look out for
1. Mistakes on your report
Did you know that a third of credit reports are incorrect? Mistakes by credit reference agencies can and do happen - and these errors can damage your score. It's really important to check your report for errors, and fix them by raising a dispute with the credit reference agency (which you can do via ClearScore).
2. Forgetting just one payment - even a utility or mobile phone bill
Missing any bill, however small, can damage your score and affect future credit applications. Research shows that phone bills are the most easily-missed - and many of us aren't even aware that a phone contract is classed as a loan and so appears on your credit report. Avoid defaulting by paying via direct debit, and check your credit report to see if there are any bills lingering.
"I missed two credit card payments in 2002, and they didn't come off my credit report until 2008. It affected my ability to get a further loan, so it's really, really important to meet payments on time!"
3. Falling off the electoral roll
Being on the electoral roll helps credit reference agencies verify who you are, and makes you appear more stable to lenders. Make sure you're registered at your address to avoid a credit score hit. You can do so here.
"I'm not on the electoral roll yet, but I know that getting that sorted will have a positive impact on my credit score."
4. Maxing out your credit limit ...
Using too much of your credit limit can damage your score, because it looks as though you rely on it too heavily. If you have a £1000 limit, and spend £700 on a family holiday, this is 70% utilisation, which is bad for your score. Try to keep utilisation under 30%.
"Maxing out credit cards to fund luxuries is a trap - one that I really don't want to fall into."
5. ... or not using any credit at all
Avoiding credit entirely is actually bad for your score, because lenders don’t have any proof that you'll pay back the money you borrow. The best way to build your credit score is to use a credit card carefully, so lenders can look at your great credit history.
"Getting a credit card and using it lightly (and paying it in full every month) gave me a much higher credit score. When I wasn't using credit, a lender didn't have any evidence that I could make repayments on time, so proving this had a big effect."
6. Applying for too many credit cards at once
Every time you apply for credit - whether that's in the form of a card, a mortgage or a rental agreement - a hard search is taken out on your report. Too many hard searches can lower your score, so try to space out applications. If you’ve got an important application such as a mortgage coming up, try not to apply for any credit in the months beforehand.
7. Closing an old credit card
If you want to close a credit card, don’t close your oldest one. Closing a long-held credit card can lower your score because lenders value long-term, stable financial relationships. When it comes to closing credit cards in general, try to strike a balance – having lots of unused credit won’t help you score but neither will maxing out. You should aim to use up to 30% of your available credit.
Find out what lenders are saying about you by getting your free credit score and report from ClearScore. Take control of your finances, improve your score and save money on interest with this free, user-friendly service. To get your free credit report and score, visit www.clearscore.com.
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Last updated: 9 months ago