Maintaining a good credit score is not easy when there are so many factors being taken into consideration. We analysed the parameters in a credit report and several factors that can have a negative influence on your credit score.
A credit score is a 3 digit number that determines your reliability of borrowing and repaying the money. Lenders use this as a tool to ascertain whether you are eligible for a loan, credit card and mortgage. Credit Reference Agencies (CRAs) like Experian, Equifax, and TransUnion in the UK, collate and analyse your financial history through your Credit Report and use it to determine your Credit Score.
It is a well-known fact that credit scores significantly impact your eligibility for a loan or mortgage. Having an average or below-average credit score might demotivate a lender from lending you money. Therefore, we can establish that maintaining a good credit score is imperative if you want to take out a loan. But maintaining a decent credit score is undoubtedly a strenuous task.
To ease this for you, we have analysed some factors that affect your credit score and what can cause it to fall.
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4.8/5
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31.90%
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Representative Example: £12,000 over 66 months, 31.9% APR fixed. Monthly payment £358.22 Annual interest rate 28.01% fixed. Interest payable £11,642.52. Total repayable £23,642.52.
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Norwich Trust
Loan Amount
£4000 -
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Loan Term
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10 years
Representative APR
31.90%
Minimum Age
21 Years
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Representative Example: £12,000 over 66 months, 31.9% APR fixed. Monthly payment £358.22 Annual interest rate 28.01% fixed. Interest payable £11,642.52. Total repayable £23,642.52.
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4.5/5
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28.96%
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Representative Example: Loan Amount: £20950.00, Loan Term: 85 Months, Interest Rate: 23.00% PA Variable. Monthly Repayments: £537.44. Total Amount Repayable: £45,682.15. This example includes a Product Fee of £2,095.00 (10% of the loan amount) and a Lending Fee of £714.00
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Representative Example: Loan Amount: £20950.00, Loan Term: 85 Months, Interest Rate: 23.00% PA Variable. Monthly Repayments: £537.44. Total Amount Repayable: £45,682.15. This example includes a Product Fee of £2,095.00 (10% of the loan amount) and a Lending Fee of £714.00
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39.90%
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Representative Example: Borrowing £3000 over 36 months with a representative APR of 39.9% (variable),the amount payable would be £134.21 a month,with a total cost of credit of £1831.56 and a total amount payable of £4831.56.
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1Plus1 Guarantor Loans
Loan Amount
£1000 -
£10000
Loan Term
1 -
5 years
Representative APR
39.90%
Minimum Age
18 years
Minimum Income
Not mentioned
Representative Example: Borrowing £3000 over 36 months with a representative APR of 39.9% (variable),the amount payable would be £134.21 a month,with a total cost of credit of £1831.56 and a total amount payable of £4831.56.
Factors that influence your Credit Score
It is important to understand what parameters are used to compute your credit score. Being well versed with these factors will help you understand what caused your score to go down. Take a look at the following factors to know more:
- Payment History: This determines whether you have a history of making timely repayments.
- Account Balance: This determines how much money you owe as loans or credit card payments. Any borrowing activity will count towards your score.
- Address History: This determines your history of address changes. Your length of stay in this residential property and whether all your accounts are registered to this property, all counts towards your score.
- Public Information: This includes all public records like electoral roll and databases that reflect your run-ins with CCJs and bankruptcy declarations.
- Credit Utilisation: This refers to the amount of credit that you utilize on the accounts where you have credit limits.
- Hard credit check: When you apply for a loan or credit, some lenders perform a ‘hard’ credit check on you. The number of hard credit checks on your report also counts towards your credit score.
Several factors can cause your credit score to go down. We will deep dive into three of the most common ones:
1. Missed Payments
Needless to say, missed payments are one of the major contributors in a falling credit score. It reflects your inability to keep up with payments. Your account providers update the status of your account with CRAs on a monthly basis. This includes details about your payment history for the month, whether they were timely or delayed. The fact that you missed a payment as a one-off event or you regularly default in repayments, is also taken into account. If you are often irregular with repayments, lenders are entitled to file a CCJ against you, to extract the money you owe them.
How much damage will this cause?
- This will depend on two factors. First, if the payment was missed recently and second, whether it’s a one-off default or a frequently occurring phenomenon. If you’ve only defaulted or missed payments once, it can be brushed under the carpet, with no impact on your credit score. However, if you frequently miss payments, have overdrafts or CCJs filed against you, it indicates that you’re dealing with bigger financial problems. In the worst-case scenario, a drastic impact on the credit score will prevent you from borrowing money again for some years.
What’s the fix?
- If it’s a genuine human folly, a one-off payment miss, then the first thing to do is catching up with the repayment. Now to avoid missing payments in the future, you can set up a direct debit or a standing order with your bank account so that payments get automatically deducted from your account.
- However, if you are suffering from a financial crisis and are unable to keep up with all your repayments, it is important to inform your account provider about the same. It is important to seek help as these companies can assist you to pan out a plan to deal with your crisis. They might be able to alleviate the situation by freezing interest and charges on your account or not resorting to legal proceedings.
2. Official applications
When you officially apply for a loan or credit, the lender will put your application through a ‘hard’ credit check. This is irrespective of whether your application is successfully accepted or declined. Multiple hard credit checks performed over time will have negative effects on your score.
How much damage will this cause?
- This depends on the number of hard credit checks that you’ve been subjected to. For instance, consider a case where you applied for a loan that you genuinely needed to bridge some gaps. And a hard check was performed on your application. Now, in this case, one single check against your account, will not have a major impact on your score. However, if you have had multiple hard checks in a small period, a month per se, it’ll cause a significant drop in your credit score.
What’s the fix?
- We wouldn’t want you to be discouraged from taking a little help from a lending hand, to bridge your financial gaps, just because of a ‘hard’ check. Moreover, sometimes money or savings can’t cover all your expenses, a mortgage per se. In such cases, you’re bound to take out a loan.
- When you carefully plan your expenses, it is easier for you to calculate how much extra input you will need to keep your head above the water. This way, you are less likely to apply for credit from multiple sources. The less number of applications you push through, the less damage it will cause to your credit score. Platforms like LoanTube, where you have to fill a single comprehensive application form to compare loans from multiple lenders based on Real Interest Rates, are ideal.
- To check your eligibility for a loan or credit, you don’t always have to apply for one. There are a number of websites that offer ‘soft’ eligibility checks, that do zero damage to your credit score. This is because these soft checks are recorded against your report, but aren’t visible to lenders. This is a good way to check your eligibility for a loan or credit, without having to commit to one.
3. Changing your address
Getting a place of your own and jumping up the property ladder is a dream come true for all. As you grow old, you feel the need to build your own little space. Finding your humble abode brings along a lot of stress. If that wasn’t enough, it does also have some impact on your credit score.
How much damage will this cause?
- When you change your residence, you will have to go through all your account providers to get your address updated. This takes its own sweet time (and paperwork). So, it might take a week or a month for all your providers to replace your old address with the new one. Similarly, you can register to vote from your new address with the click of a button. However, it’ll take at least 6-8 weeks for your electoral roll to display the new address against your name. All this confusion makes it tricky for lenders or creditors to verify your identity. Although this damage will not be significant and will diminish over time. It will occur when you move into a new home.
What’s the fix?
- If you plan things ahead of time, you could minimise the impact of this damage. For instance, register yourself to vote immediately after you move into your new home, to get one thing out of the way. Likewise, try and wait for your account providers to catch up with the amendments, before applying for credit or loans. Redirecting your courier service provider to the new address well in time could also help you keep up top with important letters.
Managing your credit score better
Simple tips to help you manage the health of your credit report, towards an improved credit score.
- Put your credit report through scrutiny regularly to prevent misinformation as well as fraud.
- Make it a point to plan all payments ahead of time to not miss any.
- Cease all credit accounts and cards that you are not using at the moment. If you have too many credit accounts, a large credit limit may get negative attention from lenders.
- Close any forgotten accounts. In case this account is in arrears, it will influence your credit score negatively.
- Ensure that you are registered on the electoral roll.
- Keep a low credit card balance and make regular, timely repayments.
Now that you are well versed with credit scores management, share these insights with your loved ones to help them through a financial crisis. For some more amazing financial tips, visit LoanTube.
