Your credit history is incredibly important when it comes to such things as getting a new car, taking out a loan or getting a mortgage on your potential new home. Having a good credit history, and by extension, a good credit score, is the key to achieving all of this. However, the things that can impact this score are more than just the usual suspects of credit card payments and the like – there’s many other factors that are a part of that number. Whether you’ve already discovered you have a bad credit score, or you’re just aiming to protect the position you’re in, it’s understandable to want to avoid things that could damage it.
But first, what is a credit score? Let’s demystify this crucial financial metric.
Your credit score is like your financial fingerprint, constantly updating and reflecting your past and present financial behaviours. It’s a record compiled by credit reference agencies based on information from various entities such as credit card providers, banks, utility companies, and even your mobile phone provider. Think of it like a report card summarising your creditworthiness, which lenders use to assess the risk of lending you money. So, every time you apply for credit or make a payment, it’s like adding a new entry to your financial diary.
Read More: What Is A Credit Score?
With this in mind, we’ve uncovered some surprising factors, both positive and negative, that could affect your credit rating for you to keep an eye out for.
1. Credit Limit Increases
Requesting a credit limit increase can be a savvy move in improving your credit score. By increasing your credit limit, you’re effectively lowering your credit utilization rate, which is the percentage of available credit you use. A lower utilization rate suggests responsible credit management and can positively impact your score. However, it’s essential to note that requesting a credit limit increase typically results in a hard inquiry on your credit report. While a single inquiry may not dent your score significantly, multiple inquiries within a short period can raise red flags for lenders.
2. Unpaid Utilities and Phone Bills
Most people tend to treat some household bills as less important than others, and not paying your utility and phone bills might be a surprisingly damaging factor for your credit score. Credit lenders look for a good history of paying off all bills, as this indicates how reliable you may be when repaying future credit that you take out. Not keeping up with payments of a bill you’re currently disputing will also harm your credit score, as will any unpaid fees that you didn’t consider particularly important. So, make sure you pay that electricity bill on time; setting up a direct debit is a good safeguard against late payments.
Related: 4 Easy Ways To Save Money On TV Licence And Internet Costs
3. Phone providers
Looking to get set up with a new phone provider? As part of the sign-up process, some companies will run a credit check that leaves a search record on your file before agreeing to take you on as a customer. However, if this is something they will plan on doing, they will have to let you know before they do it as they need your permission. Having a number of many searches on your credit record in a short period of time can hurt your credit rating, so it’s better to shop around for the best deal before you choose a provider to sign up with.
Read more: Money Stressbuster – Why You Should Cancel All Your Subscription Costs
4. Cosigning a loan
Cosigning a loan might seem like a noble gesture to help a friend or family member, but it’s not without its risks. When you cosign a loan, it appears on your credit report as if you’ve borrowed the money yourself. This means any missed payments or defaults could tarnish your credit score alongside the primary borrower. Additionally, having the debt on your credit report could increase your debt-to-income ratio, potentially making it harder to secure credit when needed. While cosigning may seem altruistic, it’s crucial to consider the potential impact on your financial health before agreeing to it.
5. Not using your card
There are few worse things you can do with a credit card than failing to keep up with your minimum payments, but if you don’t use your credit card at all this isn’t great for your credit rating either. Some credit card companies will mark your card as ‘inactive’ if it remains unused for a certain period, and in some cases may even close the account altogether. While it absolutely makes sense to close accounts you don’t use and will never use again, this could affect your credit utilisation rate. This is the ratio of unused credit limit you have compared to that in use, and which covers all the credit accounts you have.
For example, if you have three credit cards, have used all the balance on one, half on another and none of the third then you are effectively using half of the credit you have available to you (if all the credit card values are the same). If, however, the third credit account is closed this would indicate that you are using three-quarters of your available credit, which makes your credit usage look worse than it is, and could lead to a bad credit score.
6. Using buy now pay later ‘finance’
0 per cent, “buy now, pay later” financing, like those from services like Ticketmaster or from many furniture retailers, sounds like the perfect deal; you get the expensive thing you want now, but can pay for it over time. Taking out a finance plan is treated like taking out a loan, so it can affect your credit score. Sometimes, you won’t even need to start paying the loan back for a year! However, a financing plan like this could make it appear that you are high risk, as you have a large sum of credit tied to your name which won’t get smaller any time soon. Because you don’t pay anything back on this purchase for a long time you effectively have a maxed-out loan attached to you, which doesn’t look great.
One thing that may surprise you, though, is that while it can affect loan applications, using services like Klarna or Clearpay for pay in 30 days or 3 instalment options doesn’t affect your credit. Still, we’d advise not going too crazy with them.
7. Being on the electoral register at your home
This might not seem directly related to your credit score, but it can have a significant impact. Lenders often use the electoral register to verify your identity and address quickly. Being registered saves time during the application process and can improve your credit score by demonstrating stability and reliability. So, if you’ve recently moved house or haven’t registered to vote, it’s worth taking the time to ensure you’re on the electoral register at your current address. It’s a simple step that can have a surprisingly positive effect on your creditworthiness.
There’s a surprising number of things that can impact credit scores, it seems. Both good and bad, keeping all of these in mind should help make you a whizz at figuring out just how to keep your number steady, or even rising. It may even be worth checking out a few of these to see if you’re all up to date right now!
