How much do you really know about the importance of your lending habits?
When it comes to borrowing money, whether it’s a short term loan or a mortgage, lenders will use credit history to determine if you’re a good fit for their business.
As part of our Credit Made Simple series, this month we’re focusing on how your credit history can impact your ability to borrow money by answering some of your most asked questions.
How do providers decide if they’re going to lend to me?
When you apply for a loan, creditors will use a variety of factors to determine if you’re a good customer fit for their business. These factors may include how much borrowing you have outstanding, if you’ve defaulted on any payments or even how many times you’ve moved house recently.
What can affect my credit report?
There’s a number of different things that can affect your credit report - some more obvious than others.
Late or missed payments
Any late or missed payment will be marked on your credit report and will have a negative effect on your overall score.
What’s more, a missed payment can stay on your account for up to 6 years, so it’s vital that you make your minimum payments on all outstanding agreements each month.
If you’re struggling with this, the worst thing you can do is ignore the issue and hope that it goes away – it won’t.
Contact the company and explain your situation to see what payment plan can be put in place. Remember making a payment, even if it’s not the full one, is better than not paying at all, but make sure you discuss it with your lender first.
Using too much of your credit limit
Just because you have a high credit limit, doesn’t mean you should go and spend it all at once.
If you’re constantly at your limit and only paying back the minimum every month, this can be a red flag to lenders.
Keeping your credit utilisation at no more than 30% of your overall limit will demonstrate your ability to manage your money more effectively.
Moving home too frequently
Lenders like to know that you’re reliable and stable. One way they do this by checking how long you lived at past addresses.
If you have a tendency of moving often or failing to register on the electoral roll, this can go against you in the long run, even if you pay all your bills on time.
Applying for credit
Don’t make the mistake of applying for loan after loan in quick succession as it could damage your credit file. Every application will leave a record on your report, and too many won’t look good to lenders.
If you want to compare APRs, look for price comparison sites which conduct soft searches as these don’t show on your file.
CCJs, IVAs or bankruptcy
Having a Country Court Judgement (CCJ), an Individual Voluntary Arrangement (IVA) or declaring bankruptcy will be public record, on your credit report and could make it difficult for you to borrow from a reputable firm.
Mistakes on your credit file
Sometimes these things happen and, even if it’s not your fault, they can still have a negative impact. By keeping on top of your credit report and checking it often, you will be able to spot errors and apply to have these rectified.
Common mistakes are incorrect names or addresses, whether or not you’re on the electoral roll and your current debt level.
If you need some advice on how often you should be checking your credit report, follow this link to read more.
Having no lending history
As silly as it sounds, if you owe nothing and pay all your bills outright then you might end up with no credit history which can be as harmful as a bad one as lenders don’t know whether you’re an ideal customer or not.
Try using a credit card to pay for a regular monthly outgoing, such as petrol, then pay it off in full before it incurs any interest. This will leave a footprint for lenders.
If I have a low credit score, how will it affect me?
Having a low credit score can be an indication to a lender that you’re a “high-risk” borrower. Unfortunately, you’re likely to get a higher interest rate or possibly even refused.
It doesn’t stop there - not only could you be denied a credit card or loan but you could also be refused a tenancy if you’re renting, you might not be able to take out a phone contract and it may even affect the chance of getting that job you want as some businesses run a credit check as part of their recruitment process.
Overall, holding a high credit score is very important so if you’re looking for ways to improve your score, check out our video for some helpful hints & tips.
The best European countries in which to buy a holiday homeWhether your main priority is getting somewhere for you and your loved ones to enjoy the summer months, or you’re hoping to make some decent money by renting a place out to sun-seeking tourists, our guide to the most popular places to buy a holiday home in Europe is sure to give you some inspiration. 2019-6-13
Getting and maintaining a healthy credit reportTops tips for a healthy credit report 2019-5-23
Wedding Gifts - How much you should spend?How much should you spend on a wedding gift, and is a cash alternative ok? We reveal all... 2019-5-23
Wedding Gifts - How much you should spend?News & Guides 2019-5-23
31 ways to cut down your wasteNews & Guides 2019-6-13
The nation's most wanted home improvementsHome Improvements 2019-5-23
The best European countries in which to buy a holiday homeTravel 2019-6-13
How much are we willing to pay for fish & chips and other British classics?News & Guides 2019-6-3
6 sure-fire ways to save on your car insuranceMotoring 2019-5-1