Gone are the days when you could secure yourself a line of finance by nurturing a positive relationship with your local bank manager. In fact, for a lot of people, gone are the days when you have a local bank with a manager you could forge a relationship with! In the modern age, whether or not a lender would be willing to approve you for a mortgage, a loan, a credit card, or an overdraft is largely down to one thing – the content of your credit report.
The idea behind credit reports is a good one. In theory, it puts everyone on a level playing field and allows lenders to make responsible decisions about who they should or shouldn’t lend money to, but not everyone understands what can impact their credit report, and what they can do to improve it. Applying for credit becomes similar to playing online slots on website like Amigo Slots, a player on an online slots website has no way to improve their likelihood of winning; they just have to keep trying until they get a positive result. When playing online slots, continuing to try means putting more money into the game. When applying for a loan, it means filing more and more applications. In the process, a potential borrower could be reducing their chances of finding the finance they so badly want.
In this article, we’re going to take a brief look at some of the factors that affect your credit rating, and what you can do to improve them.
Multiple Credit Applications
Although this seems illogical, the very act of applying for finance can reduce your chances of getting it if you’re doing it too often. This is because credit applications leave footprints on your report when lenders check your rating, regardless of whether they decide to give you credit or not. If you apply for credit with one lender one week, and then another lender the following week, the second lender will probably be able to see the first lender’s footprint on your credit score. They then have to factor in the possibility that you’re taking on more credit than they can immediately see. They’ll also be concerned that you’re scrambling around for credit, and therefore may be in financial difficulty. This is why it makes good sense to do as much research as possible before applying for credit, and speak with a lender to determine your chances of acceptance before making a formal application.
Moving Home Too Often
The simple act of moving home won’t affect your credit score, but the implications of it might do. There are several things a lender checks when assessing you for credit, and verifying your identity via confirming your address is part of the process. If you appear to be on the electoral roll at a different address, that may limit your chances of success. Equally, if you have more than one address that’s listed as ‘current’ by an active lender, that will confuse the process, too. Knowing who you are and where you live is all part of a lender’s security – they need to know where to find you if you don’t make your agreed repayments. Try to avoid applying for credit in a new property until you’re on the electoral roll, and ensure that all of your current creditors have your up-to-date address. That gives your credit report a more uniform appearance and therefore makes it more attractive to lenders.
A Partner Or Ex-Partner
If you’ve ever had a joint financial account with a current or former partner – or even been financially linked with that partner – it could potentially impact the way you’re assessed for credit. Even if you’ve always kept up to date with every credit commitment you’ve ever had, your score will be reduced if that partner or ex-partner has had financial difficulties of their own. If the relationship is current and you still have joint financial concerns with that partner, there’s sadly not a lot you can do about this. If the relationship has ended and you no longer have joint accounts, though, you can contact credit referencing agencies to request that the link between you is removed. It’s a wise step to check this before you apply for any credit if you suspect there’s a risk of it being an issue.
Missed Payments On Credit Commitments
We know we’re stating the obvious here, but it needs saying anyway. Any missed or late payments on any of your credit commitments will have a detrimental effect on your credit report. The more missed payments there are, the worse the effect will be. A late payment isn’t as bad as a missed payment. A missed payment that has subsequently been caught up on isn’t as bad as a missed payment that’s still outstanding. Crucially, an account that’s in arrears isn’t as bad as an account that’s defaulted. Defaults occur when you miss three or more consecutive contractual payments, thereby breaking the terms of your original credit agreement. Once a default has been registered on your account, it will remain there for six years regardless of whether you subsequently pay it off or not. Defaults will severely impact your credit report, and could also potentially be the first step towards a creditor taking legal action against you with a view to recovering the balance owed. The impact of the default will reduce as time passes, but if you have a recent one on your credit file, you should focus on paying that off before you attempt to obtain credit from elsewhere.
While most people understand that missing payments or making them late will damage their credit report, fewer people are aware that moving home, making applications, or allowing old connections to stay on their report can be just as important. You should also consider the fact that any contractual payment arrangement is likely to appear on your credit score. If you have a mobile phone contract, for example, the payments on the account will be recorded on your credit score and will affect it if they’re late or missed. We hope that reading this article has given you a better understanding of how your credit report works, and if you’re thinking of applying for credit in the near future, we wish you luck!