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How to get a bad credit score

30th August 2019

There are a number of factors that affect a person’s credit score, and many people harm their credit score by making some common mistakes. The worst part is, people are often unaware that they’re making mistakes and wonder why their credit score is so bad. In some of these cases, you wouldn’t describe the individual as financially irresponsible either. So that you can avoid these errors and safeguard your financial future, we’ve outlined how to get a bad credit score. 

 

Missing or making late payments

Perhaps the most obvious entry on this list; missing payments or making payments past their deadline has a huge effect on your credit score. In fact, your track record of making payments is the biggest contributing factor to your credit score. Missing multiple payments is far worse than missing just one, and even making a payment late is far better than missing it altogether. Keep on top of payments and meet deadlines in order to protect your credit score. 

 

Being issued with a CCJ

Missing multiple payments can result in you being issued with a CCJ (County Court Judgement). Once issued with a CCJ it’s logged on your credit report for six years. It serves as a signpost to lenders that you’ve had significant trouble meeting payments in the past and can seriously affect your credit score. 

If you’ve been issued with a CCJ, paying off your debt in full within a month will remove it from your credit report. 

 

Having no credit history

Many people are under the assumption that avoiding credit altogether is a good idea. While sensible in terms of avoiding debt, this approach isn’t beneficial for your credit score. The opposite is actually true – having no credit history is bad for your credit score. The reason being that you have no evidence from which lenders can judge your creditworthiness. 

Lenders want to make the safest investment possible, and to do so they need to see some proof of good credit management. Lacking any credit history fails to support you and it could actually be damaging to your credit applications. It’s viewed as an indicator of youth and/or inexperience with finances, both of which are red flags to lenders and negatively impact your credit score. 

 

Carrying a balance

A similar approach to avoiding credit altogether, carrying a balance is when people leave a small amount of credit on their credit cards instead of fully paying it off. They often believe that this can help to improve their credit scores, but this simply isn’t the case. Paying off any and all credit as soon as possible is the best way to protect your credit score, and failing to do so can harm it. 

 

Using more credit than needed

When people take out credit cards or loans, they often feel that they can use all the money in their allowance. While this is true, it doesn’t reflect well on your credit score. For example, if you have a credit card allowance of £2000 per month but you only need to spend £500 to cover your monthly costs, it’s ill-advised to go beyond the £500 mark simply ‘because you can’. 

The amount of credit you actually use compared with how much you have available is called your credit utilisation ratio, and it’s displayed as a percentage. In the above example, the credit utilisation ratio is 25%. A high credit utilisation ratio, i.e. using a large percentage of your available credit, suggests to other lenders that you’ll struggle to meet any new credit repayments since you have such significant repayments to make currently. As such, your credit score can be negatively affected. It’s best to keep your credit utilisation ratio below the 30% threshold to show lenders that you’re fiscally responsible and would likely be able to meet repayments of any further credit you take out. 

 

Closing an old account 

Perhaps counterintuitively, closing old credit accounts can harm your credit score. People often think that closing old lines of credit will improve their credit score as it suggests they no longer need that particular credit. However, this isn’t always the case. Closing an old credit account reduces the average age of your existing credit accounts, making you seem like you’re newer to securing credit than you actually are. This suggests inexperience and can affect your credit score. 

Closing old credit accounts also reduces the amount of credit you have available, meaning your credit utilisation ratio will increase, even if your current loans remain unchanged (since your current loan now makes up a larger portion of your total available credit). When closing old credit accounts, it’s important to bear in mind how soon you’re likely to need credit again as it may take time for your credit score to recover. 

 

Submitting multiple credit applications at once

If you’re looking to secure credit, it’s understandable that you may send off multiple applications in quick succession. The problem with doing so is that each credit application will result in the lenders performing a credit check, and each of these credit checks will be logged on your credit report. 

Multiple credit checks at once suggest that you’re in a desperate situation, and this is a red flag for lenders. As a result, it can negatively affect your credit score. In a similar vein, if you’re unsuccessful with any of these applications, this will significantly harm your credit score further. Being rejected for a credit application suggests to other lenders that you’re a credit risk, and will make future credit applications more difficult. 

When in need of credit, be more methodical in your approach, and carefully consider each application before submitting it to ensure a higher chance of success. Better still, use an eligibility checker to assess your likelihood of being accepted for credit without the need for a full credit check. A financial advisor will be able to answer all your questions surrounding credit scores, applications, and more. 

 

New credit

As we’ve discussed, having a credit check can impact your credit score and opening a new line of credit will come with having a credit check performed. In addition to this, opening a new line of credit will decrease the average age of your credit accounts, making you seem less experienced than you actually are. Hence, your credit score may suffer. The fall in your credit score should only be temporary, however. Over time, your new line of credit will age, and with it, your credit score should return to its former level. 

 

Moving home often

Habitually changing your address can indicate instability in your current situation. Instability implies to lenders that you may be unable to regularly meet loan repayments, and thus makes them less confident in you as a potential investment. As such, your credit score will likely be negatively impacted. Maintain the same address for as long as possible to seem like a stable, reliable borrower and protect your credit score. 

 

Only having one form of credit

Approximately 10% of your credit score is affected by the variety of credit you take out. Therefore, having only one form of credit, such as a single credit card or one car loan, will hinder your credit score. Lenders like to see that their prospective borrowers are financially savvy and have experience in managing credit. The more sources of credit (correctly managed), the more responsible you seem. If your credit score is a little low, perhaps diversify your portfolio and take out another form of credit that you can realistically manage to prove to lenders that you’re fiscally responsible and improve your credit score. 

 

While these are the most common reasons for having a bad credit score, there are many more contributing factors. Avoiding these mistakes as much as possible will improve or protect your credit score in the long run. For more information on credit scores, get in touch with our friendly team today by calling 020 3761 6942 or emailing us at info@imcfs.co.uk

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