Ever wondered what some of the worst things you can do for your credit score are? Wonder no longer…
What is a Credit Score?
Your credit history is your reputation as a borrower and it is used to create your credit score. Your credit score is simply a number that lenders use to assess whether they want to lend you money.
A lower credit score means lenders view you as a higher-risk to lend money to; you’re less likely to pay them back in full and on time. Therefore, a lower credit score means:
- Lenders are less likely to let you borrow from them
- If lenders do let you take out a loan, they are more likely to charge you a higher interest rate
So then, what are some things that can negatively affect your credit score?
- Maxing out your credit card or using your entire overdraft. This can make it appear to lenders as though you are overly reliant on credit and are unable to effectively manage your finances without borrowing
- Missing payments or paying late. If you don’t pay your bills in full and on time regularly, it shows that you are unable to stay on top of making payments. This will affect your credit score, because why would lenders want to loan money to someone who is proven to not be able to make payments back on time?
- Defaulting… this is essentially the next step on from late payments, where the lender decides to close your account because you have missed payments over a certain period of time
- County Court Judgements, which is something that can happen when you default with a lender, if they have taken court action against you and you fail to respond. It means the court has decided that you owe the money and need to repay it. We speak more about this on the Consequences of Debt lesson on our Credit and Debt Mini Course
- Keeping old accounts which have different addresses on them. This can make lenders confused as to which address is correct, and can even make it appear as though fraud is taking place
- Applying for too much credit. Applying and being turned down for credit can hurt your credit score. Many companies perform a ‘hard credit check’ when you apply for credit with them, meaning they do a complete search of your credit report. Each of these are recorded on your report, meaning lenders can see you have applied for credit.
On the flip side of this, some things you can do to help your credit score are:
- Paying your bills in full and on time, every time
- Keeping your number of credit application to a minimum
- Making sure not to max out your credit card or use up your entire overdraft
- Keeping your ID and documents up to date
- Registering to vote at your current address
- Avoiding withdrawing money from ATM machines with credit cards
- Making sure you have a credit history. Having bills in your name helps to build your credit score, as long as you don’t miss any payments