Maintaining a good credit score is crucial for securing loans, getting favourable interest rates, and even renting a flat. While most people know that missing payments and maxing out credit cards can lower their score, some factors that can decrease your credit score are less obvious. Here are five surprising things that can negatively impact your credit score.
Even if you always pay your bills on time, using a large portion of your available credit can harm your score. Credit utilisation is the percentage of your credit limit that you’re using, and it’s a key factor in determining your credit score. Ideally, you should aim to keep your credit utilisation below 30%.
For example, if your credit limit is £1,000, try to keep your balance under £300. High utilisation signals to lenders that you may be relying too heavily on credit, which can be seen as a risk.
Every time you apply for credit, whether it’s a loan, credit card, or even some utility services, the lender performs a hard inquiry on your credit report. While one or two inquiries won’t do much harm, several in a short period can lower your score. This is because it may appear that you’re in financial trouble or taking on too much debt too quickly. To protect your score, be selective about applying for credit and space out your applications.
Most people focus on paying their credit cards and loans on time, but late payments on utility bills can also hurt your credit score. If you consistently pay your phone, gas, or electricity bills late, the service provider may report your missed payments to the credit bureaus, especially if the account goes to collections. This can result in a significant drop in your credit score. Set up reminders or direct debits to ensure these bills are paid promptly.
Co-signing a loan or credit application for a friend or family member might seem like a good idea, but it can have serious consequences for your credit score. If the primary borrower misses a payment or defaults on the loan, it will affect your credit score as well, as you’re equally responsible for the debt. Before agreeing to co-sign, consider whether you can afford the risk and whether the borrower is trustworthy.
Inaccurate information on your credit report, such as incorrect account details, unreported payments, or even identity theft, can lower your score without you realising it. These errors are more common than you might think, so it’s essential to regularly check your credit report for any inaccuracies. If you find a mistake, dispute it with the credit bureau to have it corrected. Keeping your report accurate ensures that your score reflects your true financial behaviour.
Maintaining a healthy credit score requires more than just paying your bills on time. High credit utilisation, too many credit inquiries, late utility payments, co-signing loans, and errors on your credit report can all surprisingly decrease your score. By staying vigilant and managing your credit wisely, you can protect your score and ensure your financial stability.
