Learn What Factors Can Negatively Affect Your Credit

Welcome to another article from the team here at Everyday Loans! Today we’re going to look into the different things that can negatively affect your credit score.

There’s a lot to cover here and it’s important information. Our goal is to help you understand where the pitfalls are so you can avoid making mistakes that could damage your future credit opportunities. We’ll also touch on general factors that can impact your score, so keep scrolling to learn more.

So, what negatively affects a credit score?

Let’s cut right to the meat of today’s article and look at the different factors that can affect your credit score negatively. When a prospective lender looks at your application and subsequently your credit history, there are a number of things that will stand out. Seeing these on your file can act as a red flag, making lenders less likely to accept your loan request.

To ensure your score is appraised favourably and as highly as possible, it’s good to try and avoid or mitigate the following kinds of financial behaviour:

Short history: Although there’s not much to do about this if you’re just getting started, having little to no credit history will be viewed negatively by lenders. This is simply because the process of appraising a person is based on reviewing as much data as possible. Having little to no information means they can’t reliably estimate your spending behaviours and ability to repay on time.

Fortunately, having a short credit history is something that will only temporarily affect your credit score. As you build more history, lenders will have more information to analyse. If you have a short credit history, you can speak with a financial advisor or other experts to learn some ways to easily start building your credit.

Trying to get a credit card too often: Trying to get a credit card by applying to numerous providers and institutions is usually viewed negatively as far as your credit rating is concerned. This is the case regardless of whether you are accepted for a card or not!

The reason for this is the ‘hard search’ usually used by some institutions. Unlike Everyday Loan’s ‘soft search’ technology, which means your loan application won’t affect your credit rating, a hard search leaves a mark on your record. Too many of these marks can be a red flag for lenders.

Operating close to your credit limit: Interestingly, the simple act of being very close to the maximum limit of your credit card or overdraught is another thing that may be viewed negatively. As we covered before, lenders process loans and decide on whether to accept or decline them based on viewing as much information as possible. This allows them to make a sound prediction of your future spending behaviour. If you are continually close to your maximum limit on your card, lenders may interpret this as you relying on credit more than is financially healthy.

Missing repayments: For a lender, making a decision on whether to approve a loan or not is all about consistency. They are looking for signs that indicate reliability in repayments, and one of the most damaging ways to impact your credit score is by missing payments when they’re due.

You can improve your credit over time after having missed a payment but it’s a sure way to slow your progress towards building a healthier credit rating.

It is also important to keep in mind that this issue compounds the more payments you miss. Depending on how a business calculates your credit score, they may view each missed payment as another negative mark. If you are struggling to make payments on time organisations like the Citizen’s Advice Bureau may be able to help.

Missing payments: What can happen

If you do have a debt that you are unable to repay on time, you may find yourself missing a payment. If this occurs – and particularly if it occurs several times – you may be in a position where the lender will pursue other means at their disposal to legally recover the money owed.

A borrower in this situation has two main options available to them: an Individual Voluntary Arrangement and a Debt Relief Order. These avenues are designed to help you resolve your situation, but one of the consequences of missing repayments and finding yourself in this position is a serious impact on your credit score.

From the lender’s perspective, they may opt to pursue a County Court Judgement to help recover the money that is owed. Lenders may also pursue other means to recover their money depending on your circumstances. This can lead to significant damage to your credit score, making it much harder for you to rebuild your credit and to borrow money in the future – or even open a new bank account in some cases.

Great to know: Varying scores

As you may already know, several different companies in the UK can appraise your information and provide you with a report on your credit rating – often for free. What many don’t say outright, however, is that each company’s system and processes can vary a little from the next provider. This means that credit reference agencies will usually give you a slightly different score. This is calculated using a unique process depending on what information they use for their algorithm and what information about the borrower is available.

The ranges that are expressed in a given score can also vary a little. This is good to know before you see different scores from different providers, which can otherwise be a little bit of a shock for some.

It's always better to know

This is a serious subject for anyone who is working to improve their credit. If you are rebuilding your credit rating after some financial issues, you may be facing an uphill battle but you can make it.

Thanks for stopping by! The Everyday Loans team hopes you found this article useful. If you’d like to learn more about our loan service, please visit our front page