Your credit score is a fragile thing. Each month, you might notice your score shoot up or down, even if you’ve not done anything that feels out of the ordinary.
We reveal 5 unexpected things which could damage your credit score – and what you can do to avoid them.
1) Not spending at all
You might be surprised to know that not spending with your credit card can hurt your credit score. That’s because lenders like to see both responsible and regular debt management.
If you’ve only used your credit card for a one-off purchase, lenders won’t be able to see a consistent pattern of borrowing. Even if you repaid the cost in full, lenders won’t feel confident that it wasn’t just a fluke. They like to see you regularly meet your repayments, month on month.
Your credit history is more appealing to lenders if it shows a longer track record of making payments on time. So if you’ve only used your credit card once or twice, it might not be enough to prove you’re a responsible borrower.
What you can do:
Making small, monthly payments with your credit card can boost your score – especially if you repay the cost in full every time. A simple way to do this is to connect your credit card to a regular payment, like a gym membership. To make life simple, you can arrange to automatically cover the cost with a monthly Direct Debit.
A loan could also be a good way to demonstrate consistent and responsible borrowing. As a loan is a longer commitment, making all of your monthly repayments on time will help you boost your credit score.
2) Spending too much
Whilst not using your credit at all can hurt your credit score, using it too often can also have a negative effect.
If you spend lots on your credit card, you might end up with a big balance that’s hard to shift. Not only does that mean you’ll pay interest on your balance each month, but it can knock your credit score too.
A high credit card balance can send all the wrong signals to potential lenders. If you’ve nearly hit your total credit limit, it can seem like you’re relying on finance to get by. This could make lenders worry that any other form of credit could be too much for you to handle.
What you can do:
A general rule of thumb is to keep your credit utilisation below thirty per cent. For example, if your total credit limit across all cards was £1,000, you should ideally have a balance of £300 or less to keep a healthy credit score.
3) Not signing up to vote
Whether there’s an election coming up or not, signing up to vote can improve your credit score.
Why? It all comes down to proving your identity. Having your name on the electoral register helps lenders quickly confirm who you are and rule out fraud when you apply.
Plus, lenders love to see stable living conditions on your credit report. If they can see you’ve lived at your home for over three years, it can boost your credit score. That’s because living at the same address for a long time can suggest financial stability – meaning you’re more likely to be a safe pair of hands.
What you can do:
The solution is simple. Signing up to vote takes around five minutes and it can improve your credit score in days. You can register here.
4) Closing down accounts
Have you closed down a financial product this month? From a retail store card to a dusty old credit card, cancelling an account can affect your credit score.
While it can make sense to close down an account you’re no longer using, it isn’t always good news for your credit score. Cancelling a credit account lowers the total amount of credit you have available to you – which can send your credit utilisation rate rocketing.
In other words, reducing your total credit limit can make it seem like you’re using up a larger proportion of your finances. This can paint a negative picture to potential lenders, as it can suggest you’re unable to keep a cap on your spending.
What you can do:
If you have an old credit account you use less than others, it could pay to keep it open. This will keep your total limit high, which can tell lenders you can be trusted to handle larger amounts of credit – as long as you’re not tempted to use it.
5) Making too many applications
Applying for finance now and again won’t have a big impact. But if you’ve been applying left, right, and centre – and within a short space of time – you could damage your credit score.
Making a full application for a financial product will leave a ‘hard’ footprint on your credit file. Lenders can see hard footprints and they could be put off by seeing lots of applications within a short time frame.
That’s because it can suggest you’re not concerned about where you’re getting finance from. Lots of applications at once could tell the lender you’re in a desperate position – which can make you seem like a risky borrower.
What you can do:
Luckily, you can often check to see if you’re eligible before you apply. Keep an eye out for eligibility checkers and get the green light before you leave any visible marks on your credit file.
