The surprise factors that can damage your credit rating

Your credit rating and maintaining a good credit score is key to your financial freedom. Your credit score is a numerical value which reflects your creditworthiness and potential lenders use this score when deciding whether to lend to you and the rate they charge you for products including credit cards, loans and mortgages.

According to Experian, the highest score you can achieve is 999 (good credit) and the lowest is 0 (bad credit). Your credit rating can go up or down depending on your payment behaviour and falling behind on repayments can seriously limit you from accessing financial products. 

There are some surprising things that can cause individuals to experience a fall in their credit rating and below we explain the ones that you may not know about. 

Owning too many credit cards

It is very easy these days to open a credit card account, especially for store cards from our favourite brands and supermarkets. It can be even more tempting when they offer free gifts and bonuses when signing up.

However, the impact of having too many credit cards can make potential creditors nervous because you potentially have access to thousands of pounds – and this could make it hard to repay a new obligation. Furthermore, having so many accounts open suggests that you might be financially stretched if you have been applying for card after card.

The best practice is to only use the cards you need, try clearing the debts from any existing cards and closing those that you do not use. 

Mobile phone contract 

Naturally, if you do not repay your mobile phone bills on time every month, it suggests financial difficulty and therefore your credit score will fall. However, some UK customers have still had ‘default’ marks on their credit file because they have upgraded their phone contracts or changed accounts.

There have been several recent cases with Vodafone whereby customers have upgraded their phones but their old contract has been left open, without their knowledge, and because this has gone unpaid, their credit score has fallen as a result. It is essential that you close all other accounts with your provider when upgrading. 

Not alerting creditors that you have moved

If you receive any bills in the post for loans or utilities, it is vital that you tell any creditors that you are moving home. You may still have some debt left outstanding, even though you have moved home. There is the possibility that you will not receive your statements, especially if you have moved far away – so it is also worth closing any existing accounts before moving home.

Not checking your credit record 

Most of the issues mentioned above can be avoided by regularly checking your credit record. There are several websites that offer this service including ClearScore and Noddle.

The benefits are that you receive an email or text message every time there is a check on your account by a creditor or if there has been a default put against your name. This gives you the opportunity to react quickly and speak with the company who can rectify the situation, leaving your credit score intact. 

Most credit checking providers offer consumers a 14-day free trial to review their credit records and then the cost is usually just a few pounds per month after that. There is also the option to request a one-off report for just £2 and credit reference agencies are legally obligated to offer this.

High cost loans have no impact 

Despite what many think, having a high cost loan on your credit report does not negatively impact your credit rating. 

A spokesman from short-term lender Uncle Buck explained: “Banks like Halifax and HSBC recently announced that they see high-cost credit as if it were any other type of loan. Therefore, simply applying and repaying it on time does not present any risk to your credit score.” 

The only way that high-cost credit like payday loans can have an impact to your report is if you apply for too many products in a short space of time, showing that you might be financially stretched. Similarly, falling to repay your loan on time will put your account into arrears and lead to a mark on your credit file for up to 6 years.