Written by: Cally Worden
Building a sound credit history takes time, patience, and a high degree of self-restraint. It means managing your finances carefully over an extended period of time. After all that effort it would be a shame to inadvertently damage your credit rating, but many people don’t realise how shockingly easy this is to do. Here are 5 financial realities that can damage your credit history in an instant. Avoid them at all costs.
Eyeball your Credit History
Credit ratings systems are largely automated. This makes it easy for errors to creep in. If you don’t review your credit history regularly you run the risk of missing an error that would set you up for a whole range of credit headaches. Examples of problems include:
- Mistaken identity, where a lender reviewing your application for funds reviews the history of another (less careful) client with the same name and rejects you on the basis of their poor history
- Identity theft – where repeated credit applications in your name are made by a third party and appear on your file, depressing your credit score
- Old default notices – where a notice (such as a missed payment) that should have been removed from your file after 6 years remains extant
- Bankruptcy Flags – where a notice of bankruptcy remains on your file beyond the standard 10 year period
If you are planning to make an application for credit it’s wise to check your credit history first. Any rejection – even if it’s not your fault – will show as a potential black mark on your history, you want to avoid that happening if you can.
Limit your Credit Applications
You may be innocently searching the market for a new credit card, loan, or mortgage. As part of the process it’s sensible to obtain a few quotes. But many lenders will run a standard check on your credit score as part of the quotation process, even if you never take up their offer. These searches leave a mark on your credit record, potentially flagging you as high risk.
Get on the Electoral Role
Fraud and identity theft are massive issues for financial institutions. They cost the financial services industry millions of pound every year. So lenders like to know who they are lending too and where they live. For a solid credit record it’s important to establish permanency of residence. The best way to achieve this is by signing up to the electoral register. This also ensures you benefit from the right to vote. If you haven’t done this yet, contact your local authority and get it sorted today.
Cut yourself Some Slack
Having a high credit limit on your cards and overdraft can offer you financial security, especially if you regularly pay off your bills in full each month. But even though high credit limits indicate lender confidence in you, they can also act as a red flag. Lenders can see from your credit record whether you have a history of using the maximum levels of credit available to you. If they see that you do this on a regular basis it can cause them to question whether you are over-stretching your finances. Conversely, having a high credit limit but consistently using only a portion of it shows lenders that you have control of your money and boosts their confidence in you.
Forget you Not
Skipping or forgetting payments is the cardinal sin of credit history management. One single missed payment can stay flagged on your credit record for up to 6 years. All your hard work in establishing a glowing record for yourself can be lost overnight.
None of us are perfect. And the lenders know this. And they need us to keep borrowing because it makes them money. So, if your credit past is less-than-healthy don’t fret. Work hard now to build a new financial reality for yourself. Lenders tend to focus on your more recent activity as being more relevant to any applications your make. In short, it’s never too late to regain the advantage, but by avoiding the above 5 pitfalls you can help to keep your credit rating healthy and avoid the need for repairs to your record.