Here are a few possible reasons your credit score could drop
Ever checked your credit score only for it to be lower than you’d expected it to be?
Well, it’s surprisingly easy to hurt your credit score without realising you’ve done anything to impact it, including:
1. Not paying parking tickets on time
So you just had to park on double yellow lines and the next thing you know there’s a fine in the post. For one reason or another, you forgot to pay the fine within the time you were give. No harm done, right? Well, that depends on whether you ignore the reminders that they send you. Before you know it, what started out as a small penalty has been escalated into a large fine and been passed to a debt collector. This could leave a mark on your credit history that might hurt your credit score.
2. Hardly ever using credit cards, or not using credit
Strange but true, if you don’t use your existing credit cards, your credit score may go down. Lenders like to see that you utilise credit sensibly, keeping within credit limits and making payments on time. If you never use available credit, lenders will be unsure if you will use it sensibly in the future. But be sure not to go to the other extreme and always keep spending on credit cards under control. To work out your credit utilisation score divide your total balance by available credit times 100.
Credit score calculation example:
Adam has three credit cards. Card A has a £4,000 limit and a £2,000 balance (50% utilisation). Card B has a £1,000 limit and a £300 balance (30 percent utilisation). Card C has a £2,000 limit and doesn’t carry a balance (0% utilisation). Adam’s overall utilisation is 32.85 percent (£2,300 used, £7,000 available). If Adam shuts down Card C that he never uses, his overall utilisation will jump up to 46 percent (£2,300 used, £2,700 available), likely resulting in an increase in his credit score.
You might think that you’d have a great credit score if you never take out loans, have credit cards, or have an overdraft. But, without a developing track record for using credit, you’ll suffer from having a ‘thin credit file’, which will mean a poor, low credit score. Just having an overdraft and dipping into it (but quickly repaying it) could improve your rating.
3. Forgetting to take library books back
If you fail to take a book back to the library and simply ignore the fine you’ll no doubt receive in due course, the situation has been known to escalate to the point where a debt collector has been instructed to recover the books and the penalty fee. And that is when your credit score could be affected.
4. Getting married to someone with ‘bad credit’
Does your loved one have a poor credit rating? If you take out a mortgage or a joint bank account, you are taking out ‘joint finances’ meaning that their credit score and credit history can be linked to yours, and that could bring your individual score down as well. Similarly, if you become an authorised user on someone else’s credit card account and they have a poor credit score, your rating may go down as your history has now become linked.
5. Frequently requesting credit limit increases
Each time you ask for a credit limit increase for your credit card, it can trigger a hard inquiry that may bring your credit score down.
But, if your request for further credit is accepted, it could improve your credit score. That’s because lenders don’t like to see borrowers ‘maxing out’ their credit cards. If your request for further credit is refused, your score will go down.
6.Missing tenancy payments
Your landlord may send details of unpaid rent to a debt collector. If news of this makes it into your credit history fit could seriously damage your credit score. However, Experian recently announced that many tenants would soon be able to have rental payments made on time and in full added to their credit file.
7. Making late payments for your mobile phone contract
Your payment history is a critical part of many scoring calculations, so it’s important that you avoid missing or paying any bill late. Sadly, paying your mobile phone bill on time won’t leave a positive mark on your credit score, but defaulting on your mobile phone’s account is seen as a serious negative that could have a highly negative effect on your credit score.
Slightly more obvious things that can affect your credit score
As well as making sure don’t do any of the things listed above, check that you’ve been following these fairly well-known hints and tips for improving your credit score:
- You’re on the electoral register
- You’ve contacted the providers of any credit cards you no longer used and had the cards cancelled
- You’ve stayed around 30% below any of your credit limits
- You’ve stayed within your credit or overdraft limits
- You’ve made sure your name is featured on a least some bills, including for utilities and council tax
- You’ve paid all bills on time
- You’ve checked that there are no mistakes on your credit reports and fixed anything that was incorrect
- You’ve been careful not to apply for a lot of credit within a short time period
- You’ve always been sure to have paid more than just the minimum payment for credit cards
- You’ve not moved homes frequently
If you’re suffering from a poor credit score, it doesn’t necessarily mean that you’ll be excluded from credit. For example, because a secured loan uses collateral to secure the loan, your credit score may be less important. But, because everyone’s circumstances are different, you’re best contacting a mortgage broker to discuss the options that are open to you.