We all know that whether or not we are successful in applying for a loan, credit card or similar depends on our credit score. Many people though think a credit score is one of those things over which we have very little control, but this just isn’t true. There are lots of positive steps which you can take to improve an average or poor credit score, but on the flip side, there are also actions which will damage your credit score too.
Frequent Changes
If you keep an eye on your credit score, you will probably have noticed that your score dips a little when you open a new bank account or take out a new credit card. As you start to build up history with your new account by making regular payments or not going into an unauthorised overdraft, your score will recover. But if you decide to change provider quickly, opening a new account every few months, then your score might never get the chance to recover fully.
Appearing “Desperate”
Whether it’s the case or not, lenders are going to perceive someone who has maxed out their available credit as desperate or in serious financial difficulties. This could apply to you if you are carrying a big balance on a credit card and only making the minimum payments each month rather than trying to pay it off.
Similarly, applying for new credit agreements too often can damage your credit score too, even if you are accepted. Every time you apply for new credit, this is registered on your credit file and known as a hard search. A better way of working out your likelihood to be accepted for a new credit agreement is to carry out a soft search first, which will give an indication whether you are likely to be accepted or not.
Missed Payments and Financial Difficulties
If you miss payments, make late payments or have defaults recorded on your credit record, then this can seriously lower your credit score for as long as six years. Although it may still damage your credit score, it’s always best to talk to lenders and explain the situation with a view to renegotiating terms rather than just ignoring the issue.
Overstretching yourself and owing more than you can afford to pay back might mean you have to consider more drastic action, such as going bankrupt or getting an IVA (Individual Voluntary Arrangement). Lenders might also go to court and have a county court judgement (CCJ) issued against you to try to force you to pay a debt back. Any of these issues can reduce your credit score to the minimum and make it difficult to open even a basic bank account. When taking out any credit, it’s important to think about not only affordability now, but how you would manage to keep making payments if your circumstances changed.
Lack of Credit History
If you’ve never had a credit card, a loan, or mortgage, then the banks simply have no information to base their assessment on, resulting in a low credit score. People in this situation can establish a credit track record in a range of ways, such as taking a mobile phone contract on a pay-monthly basis rather than pay as you go or applying for a basic credit card with a low limit, which they then pay off in full each month. Doing this every month should see your credit score start to climb, but it could take six months to a year of making regular payments before you see results.