A good credit score can have a huge impact on your financial health, helping you secure loans, mortgages, credit cards, and so on at preferential rates. To protect yours, it’s important to understand some of the things that can affect your score. One strategy to consider is using a credit card for bad credit that shows repayments almost immediately, which can help manage your credit more effectively and improve your credit history. Here, we explore four things that can have a negative impact on your score and what you can do to avoid them.
- Missed or late payments
Missing a payment on a credit card, loan, utility bill and so on can negatively impact your credit score. This is because it can make lenders believe that you’re struggling to manage your money.
If you have a late payment on your credit report, it will be there for six years. However, if you keep on top of payments moving forward, your score will increase as time passes.
To avoid late or missed payments, consider setting up direct debits, standing orders and reminders to ensure you pay all your bills on time.
- High credit utilisation
Your credit score could be harmed if you use a lot (or all) of your available credit. For example, if you have a credit card with a limit of £5,000 and you use £4,000, you’re using 80% of your available credit.
Experian says that “having a high utilisation ratio one month may hurt your score” but “once you pay down your balance” your “credit utilisation goes down as well”.
“If you’re focussed on having excellent credit scores”, they say “a credit utilisation ratio in the single digits is best”. However, keeping it under 30% is typically considered a “good” level.
- Multiple applications in a short time
Try to avoid applying for multiple lines of credit within a short time frame. Many applications will require a hard search, which can slightly reduce your credit score.
Multiple hard searches in quick succession can have a larger negative impact than if you did just one. It may also suggest to lenders that you’re desperate for credit, making you less appealing.
For this reason, it’s recommended to space out credit applications and get prequalified where possible.
- Errors in your report
It’s worth checking your credit report for any errors – as mistakes can impact your overall score.
For instance, keep an eye out for incorrect personal information (like your address being wrong), duplicate debts (if the same thing is recorded more than once), paid debts showing as outstanding and out-of-date information.
You can dispute errors by contacting the relevant bureau, such as TransUnion, Equifax or Experian.
If you have a poor credit score, there are many ways to improve it. For example, registering on the electoral roll, building your credit history and making payments on time.
You could also consider getting a credit card for bad credit. If you stay below your credit limit and make payments on time, it can help you build your credit score.
By taking steps to protect and improve your credit score, you’ll have better chances of securing things like loans and mortgages in the future. Plus, you may be offered better interest rates, saving you money.
For more information on improving your credit score, check out the useful guide on Money Helper.