5 Things That Hurt Your Credit Score

It’s crucial to develop a good credit score (also known as credit rating). Lenders assess your credit score when you apply for car finance or other loan types. They want to be confident that you’ll make your repayments on time. A good credit score also gives you negotiating power with lenders.

You can check your credit score for free with credit reporting agencies like Equifax. It’s best to do that before you make a finance application.

Lenders will be more likely to reject your application if you don’t have a good credit score. Or if they do approve it, they’ll be likely to charge you a higher interest rate.

You’ll develop a good credit score if you pay any money you owe on time. That doesn’t just include loan or credit card repayments. It also includes utility bills like your electricity and phone charges. If you don’t make your credit repayments on time (or at all), your credit score will drop.

Here are 5 other things that can hurt your credit score.


1. Making too many credit applications

Lenders can see any credit application you make. Making too many applications in a short period can lead them to think that you’re desperate for credit. They’ll then be more likely to think you’re a credit risk. They’ll be especially wary if your application has been rejected by other lenders.


2. Making payday lender enquiries

Payday loans are short-term arrangements to borrow low amounts at high interest rates. They can help if you’re struggling to make ends meet. But it’s important to understand that applying for one goes on your credit file. It sends a signal to lenders that you’re living from pay to pay.
Their high interest rates can also make it more difficult for you to make your repayments. They could make it harder for you to improve your credit score.


3. Having no active credit

You can’t develop or improve your credit rating if you have no active credit. If you’ve never had any credit at all, you won’t have a credit history. That means you won’t be able to show a track record of making repayments on time. An easy way to get active credit is to put a utility bill in your name and make sure you pay it on time.


4. Maxing out your credit card

This means you spend up to your credit limit on your card. It’s a sign that you’re racking up debt, especially if you’re only make your minimum repayment each month. You’ll have no spare credit capacity, which will make lenders wary of giving you more.

Credit cards also have high interest rates. Maxing out your credit card will make your repayments more expensive. If you can’t afford to make them, it will hurt your credit rating.


5. Refinancing/balance transfers

Every time you make a credit application, it goes on your credit file. Any credit application can temporarily lower your credit score, including refinancing applications. The benefits of refinancing needs to outweigh that temporary drop.

For example, it can be a good idea to refinance to get a lower interest rate. It can also be a good idea to refinance and combine two or more debts into a single loan. Doing that will make your repayments easier to manage.  A temporary drop in your credit score can be worthwhile in either of those situations.


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