Millions of people have bad credit scores. Every year, hundreds of thousands are turned down when they apply for loans, credit cards or even mobile phone contracts because something on their record is acting as a red flag for the banks and other mainstream lenders. Those black marks could include things as serious as county court judgements (CCJs) or something relatively minor like a couple of late repayments on a credit card.
Having a good credit score undoubtedly makes life easier, giving you access to a large number of mortgages, personal loans and credit cards. Having a blemish-free record will also allow you to get the best interest rates when applying for loans and also mean that the banks and other lenders are willing to loan you larger amounts.
Those who have show financial responsibility throughout their lives are more likely to have excellent credit scores than those who have not. In order to ensure that you have a good score, you should pay all of your bills on time every time, not go overdrawn at the bank without first getting approved for an overdraft, not falling behind on your mortgage payments and ensuring that all of your utility bill payments are kept up to date.
But there are a number of smaller and relatively little known mistakes that many people make and are unaware that these can actually count against you when being assessed for credit:
You may have moved recently and not had a chance to get your name on the electoral roll. But not doing so won’t just mean that you won’t be able to vote: it will also make it much more difficult for you to access credit. One of the first things that lenders do is look to see if a new applicant is on the electoral roll. If somebody isn’t, then this might suggest that this person has had money problems in the past and is trying to hide from their debts by keeping their address hidden. People who tend to move a lot – like contractors and members of the armed forces etc. – are also shunned by some lenders.
Always make sure that you are registered to vote at your new address.
Never using credit
If you couldn’t afford to put aside the money for a few months to pay for an item, then you can’t afford it. This is an old saying but remains a truism: nobody should simply use credit as a way to live beyond their means. For many people – older generations in particular – this means that they never use credit cards, loans or other forms of borrowing. They prefer to save for items and never go overdrawn at the bank.
Other people will only use a single credit card and just for regular purchases that they would otherwise use a debit card for. These people always repay their entire balance each month so that they avoid all interest charges.
Both of these sets of people sound like they would be the perfect borrowers and would be actively courted by the lenders. But, perhaps perversely, behaving this prudently can actually harm a person’s chances of obtaining credit. Lenders, as well as assessing somebody’s credit score, also like to know that they will make some profit from taking somebody on as a borrower. If you never use credit or repay all your borrowing every month, then no lender will ever make a profit from you. You will, in effect, be seen as too cautious to be offered credit.
Applying for credit too often
There are hundreds of credit cards and thousands of loan products available and most of them can be applied for online with decisions in seconds. The rise of the web has made applying for borrowing incredibly easy and quick. That makes the temptation to apply for a new card every time you see an offer almost overwhelming. While it may seem sound financial management to constantly shop around for loans and cards to get the best deal, this can actually damage your credit score.
Each time that you apply for credit, a credit search will be run on you and this will be registered against your credit record with the three main credit reference agencies. Lenders don’t like to see a lot of credit searches on a person’s record, particularly when those are in a short space of time. It suggests somebody who is having trouble managing when, in many cases, this is the opposite of reality.
Having too much credit available
We’ve already looked at how not using credit only having a single card can reduce your chances of getting approved for a loan or card. But having a bunch of credit cards and never using them can also have an adverse effect on your credit score.
Lenders don’t like people who take out cards but then don’t use them. These people will not make much in the way of interest for lenders and do are viewed as too responsible. They will, in effect, end up costing the lenders money rather than making them more. So if you have some credit cards which you never use, it is a good idea to close some of them and just keep one or two in case something unexpected crops up. Closed accounts will be shown as settled on your credit record, and increase the likelihood that you will get accepted for more credit in the future.
Being linked to a debtor
You may run your finances perfectly but if your partner, son or daughter or anybody who lives in the same house or is linked to you financially in some way behaves irresponsibly with money, then this might mean you are declined when applying for credit. Find out who you are linked to financially by applying for your credit record and then writing to the agencies to correct any mistakes.
Article provided by Mike James, an independent content writer working together with technology-led finance broker Solution Loans, who were consulted over the information in this post.