We all want to make sure we have a good credit score. Having a bad credit rating can impact on many different aspects of your life: it can make it difficult to get accepted for a mortgage, you could struggle to get access to other types of funding in a financial emergency, and you could end up with receiving worse interest rates as a result of a bad score.
Most of us are aware of certain things we can do to improve or maintain our credit score, such as making sure we are on the electoral register, paying any loans off promptly, and closing unused accounts we have on file, but there are other things that can surprisingly ruin your credit rating that you may not be aware of. We take a look at what these are.
1. Avoiding credit entirely
You may think that not having had to borrow any money and having no debts on file means that this would have a positive effect on your credit rating. Not necessarily. This is because you can end up with having a low score as there is no record of you being able to manage repayments promptly, which can put off lenders from letting you borrow money in the first place. This is common for young people. This is why it may be worth looking at applying for credit products (such as a credit builder card) that can show your ability to handle credit.
2. Lots of aliases
Having multiple aliases such as being known under one name at work (your married name), and then your maiden name at home can make lenders wary and therefore affect your credit rating. Some creditors consider this as suspect as you may be trying to engage in fraudulent activity.
3. Applying for payday loans
High cost credit such as payday loans and cash advances are commonly seen negatively by a lot of lenders. It is because these types of products are designed for those who are financially stretched and under financial pressure. Whilst it may not impact your score, simply having bad credit loans on your file can be flagged on your credit record and impact your chances of being approved for loans and credit cards in the future.
4. Applying for multiple applications at once
If you fall into the above category of never having previously borrowed money and now want to apply for credit, do not make the mistake of making multiple applications within a short period of time. Lenders will perform a search on your credit file and leave a footprint every time they visit. Since other lenders can see these footprints, having several in a short time can demonstrate that you are in financial difficulty. Check My File say that it is normal to have around 12 credit searches per year without having any negative impact, but having numerous searches per month is a concern.
It is also worth using eligibility checkers before making a credit application in order to find out your likelihood of approval. These kind of tools will not leave a search footprint on your file and therefore will not harm your credit file.
5. Withdrawing cash on a credit card
It may come as a bit of a surprise, but withdrawing cash on a credit card could impact on your credit rating. This is because multiple cash withdrawals, in a similar way to making many credit applications at once, can suggest to the lender that you may be in financial difficulty and therefore could struggle with managing debt in the future.
6. Not using your credit card
At the same time, never using a credit card that you have at all can ruin your credit rating too, therefore you need to maintain a delicate balance. You may think not using your credit card could only be a positive thing, but certain credit card companies will put your card down as ‘inactive’ if it is not used for a long period of time, or close it entirely. If this happens, it could affect your credit utilization rate. By this logic, closing any unused cards including credit cards and store cards will improve your score.
7. Not paying your phone bill
Mobile phone bill can impact your credit score. There have been cases with Vodafone whereby someone forget to close their account before upgrading to a new one. The result of years of unpaid phone bills ruined their credit scores and one person was denied a mortgage as a result.