With Christmas around the corner and bills to juggle, at this time of year, lots of people feel they have to turn to credit to tide them over.
Or, perhaps with the Bank of England base rate having just been increased, they’re looking to sort a new mortgage out.
If you are about to apply for credit, it’s worth doing some preparation and making sure you look in good financial shape to a lender – otherwise you run the risk of being offered a worse rate, or being rejected altogether. And there might be something you’re doing – or not doing – which, without you realising it, could be damaging your credit rating.
Here, Jacqueline Dewey, managing director at credit checking service Noddle, highlights seven pitfalls which could wreck a good credit score.
1. Not checking your credit report
Ignorance isn’t bliss. By checking your report regularly you can help protect yourself from a range of potential problems and risks. Also, be aware of errors on your report which can be costly, as it can mean you’re rejected for a loan, mortgage or credit card. Make sure you check, check and check again and report any incorrect information immediately to the relevant financial body or credit reporting service.
2. Being ‘fashionably late’
A lack of punctuality with your financial obligations is a surefire way to ruin your credit rating. Lenders respect the ability to meet your current financial commitments on time each month.
3. Making excessive credit applications
Making too many “hard search” credit applications at once can really damage your credit score, as lenders view this as desperate behaviour – even if you’re just shopping around. There are credit eligibility checkers out there which are helpful resources that give you an idea of what you’ll be accepted for, without damaging your credit score.
4. Credit shyness
While it’s good to be prudent, complete credit shyness can have unintended consequences – such as impacting on a credit score and the chances of being accepted for a mortgage or car finance, for example, in the future.
5. Using all your credit
Regardless of whether you pay on time and in full, maxing out your available credit can imply that you’re too heavily reliant on borrowing. There’s no definitive guideline, but try only using around 25% of your available credit, which may indicate to lenders that you’re minimal risk and, in turn, help improve your credit score.
6. Not being included on the electoral roll
Exercising your right to vote isn’t just good for democracy, it can help your bank balance. Lenders use the electoral register to check your name and address to prove that you live where you say you do.
7. Building up unused credit
For some lenders, unused credit can be a red flag. They’re apprehensive that you could spend all your available credit in one day, and thus struggle to pay back the debt. It’s advisable to think tactically about which cards you need and use, including store cards, and then make a judgment call on whether they’re really necessary.