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Building and maintaining your credit score is vitally important to maintaining your creditworthiness, as potential lenders will use this score when assessing the risk of lending to you.
Your credit score can fluctuate depending on your behaviour, such as falling behind or missing payments entirely. However, there’s a surprising number of factors you may not know about that could be tanking your credit score!
If you receive any paper-based bills or communications from utility providers or creditors, it’s vital that you update your records with them and provide your new address. Otherwise, you could have bills or debt left outstanding without your knowledge, which will negatively affect your credit score.
If you want to be certain you’re not missing any important post when you move you can set up post redirection from Royal Mail, which will automatically direct post going to your old address to your new address. This will cost you money, but can be a sensible idea when you move.
Many of us like to upgrade our phones every few years, but you should always check that your old contract has been fully cancelled off. There have been cases where providers have accidentally left old customer contracts open without their knowledge. As the contracts were unpaid, customer credit scores fell as a result.
When changing contracts you should always double check the old contract has been closed and keep an eye on your credit report at regular intervals to make sure nothing has slipped through the cracks. There’s a number of free providers you can use such as Credit Karma and Experian.
A credit card can be useful for building your credit score, as it shows regular credit utilisation.
It’s always beneficial to keep your credit utilisation rate low and not too high, as this could show you’re having trouble managing your finances.
However, if you don’t use your credit card at all it could be closed due to inactivity which has a knock-on effect on your credit score. Having your credit card closed can not only hurt your credit score but increase your credit utilisation to high levels as your total credit limit has now been reduced.
A credit footprint is a mark or record to show that a lender or a creditor has searched your credit file. For example, applying for a short term loan would leave a footprint. A soft credit search to assess limited information on your credit score will not leave a footprint, but a hard credit search to check a complete file will normally leave a footprint.
If a company sees that you have recently recorded lots of credit footprints with loan lenders, it could imply that you are in financial difficulty. For many lenders, too many recent footprints left by short term loan lenders could negatively affect your application.
It’s easy to check the shape of your credit file for free with Experian.
There are a few ways you can build up a credit footprint – we’ve listed a few tips below:
It may sound a little odd, but you need to take out credit to get other credit. This shows that you are capable of repaying the amount borrowed from another lender. Credit cards are a good example of this – making regular payments towards this and paying on time show you are a responsible borrower. If you aren’t using your credit card though, some companies will mark the card inactive, or even close down the account. This can affect your credit file as things like the credit limit you have compared to the credit you used are considered.
Setting up something as simple as a Direct Debit to pay your phone bill can help boost your credit file. This shows that you aren’t concerned that the funds won’t be there and that they can be collected automatically each month. Therefore it’s a good idea to set these Direct Debits up the day after payday, to make sure you have the funds!
This can be a little more risky, as you could have a large amount of credit attached to your credit file that doesn’t go down for months, when you need to make payments. But getting something like a car on finance can work like taking out credit, in that it shows you are able to pay back things on time.
If you’ve managed to avoid the factors listed above, which can impact your credit rating, great! But always remember – you should regularly check your credit score to avoid any future surprises. Having a good credit score will help you secure loans in the future. Though if you do have a low credit rating, some lenders can also help secure a loan for poor credit borrowers.
If you want to build up your credit score, check out these top tips!