Keeping on top of our credit scores is something that my husband and I have been heavily focused on lately.
Our individual credit scores need to be in the best shape possible in the hope that we can buy a home soon (providing that the consequences of Brexit will allow us to do so)!
When checking our credit files a while back, we were fully expecting that the defaults from our debt management plan would negatively effect our credit score, which they did (on my husband’s file at least). What we weren’t expecting however, was how seemingly insignificant things can also have a detrimental impact.
In this post I’ve detailed 5 simple and ultimately, quite costly, mistakes that can impact negatively on a person’s credit file. If you think any of these things could be affecting your credit score (or even if you’re not sure), I’d recommend you get a copy of your credit file and check.
You can check your credit file for free – read on to find out how. The sooner you know what’s going on in your credit report, the sooner you can improve it!
1. Incorrect address details on your credit file
You would think that if credit reference agencies are holding details about which lines of credit you have access to, they would also have your correct address. Not always the case, as we found out recently!
On my husband’s credit file, he had a black mark against him for not appearing on the electoral roll according to Experian and this is one of the factors used to determine your credit score.
The error came about because Experian had the address spelled incorrectly on their system! (He was on the electoral roll). It took about a month for this to be investigated and put right.
2. Too many credit applications
I’ve made this mistake so many times in the past when I was trying to find a credit card that would offer 0% APR on balance transfers. I was hoping to speed up my rate of debt repayment by not having any interest to contend with while I was making over-payments.
However, I ended up applying for a quite a few new credit cards when I already had lines of credit open and in the end I was rejected because of the footprints left on my credit file.
Anytime you apply for credit, whether it’s for a loan, credit card, mobile phone contract or car insurance, a trace will be left on your file. I find this really tricky with car insurance in particular as it’s something that I definitely need and have no choice to apply for. The credit part comes in because I’m paying for my insurance monthly. I should really move to paying it annually, but that’s another post.
If you want to keep your credit report in good shape, be mindful of how many times you’re applying for credit facilities in a short space of time. It’s worth planning ahead and deciding whether you really do need that amazing cashback card now or whether you’d be better off waiting until you’ve gotten a better deal on your mortgage.
3. Your credit file is linked to another person’s file
When you share a financial product with someone, you’re linking yourself to them on your credit report. It doesn’t matter if you live in separate houses or whether it’s a friend rather than your partner, if you’re in it together financially, you’re in it together on your credit file.
Why does this matter? Well, lenders can check the other person’s credit file when assessing whether they should lend you the line of credit. So if the other person has a bad credit score, this could affect yours.
This is the kind of thing that you can easily forget about, especially if you’ve split up with a partner or if you’ve both decided to go separate ways for another reason. When I checked my credit report, I found that I was linked financially to my brother (who thankfully seems to have a good credit score).
I was racking my brains for several minutes before remembering that we set up a joint bank account when we started an eBay business together over 5 years ago. The business was short lived but we both forgot about the bank account. No damage done here, but I still wanted to close the account all the same, just in case!
4. You were late with a payment
Whenever you pay a credit bill late, this is effectively a default against your credit record. Doing this just once or twice a year can have a negative impact on your credit file. If lenders can see that you’ve been late with payments, or worse – missed a payment altogether, they are going to think twice before offering you further credit.
The easiest way to make sure you don’t forget about payments by mistake is to set up a direct debit to pay them. Ensure that credit card and loan payments are taken from your bank as early as possible in the month so that you’re likely to have enough money in the bank to fund them.
5. You already have too much debt
Just because your last creditor gave you a high credit facility doesn’t mean that you should use it all. If you already have a high proportion of debt compared to your available credit balance, then this won’t look great when it comes to your credit score and you may well be rejected for future credit.
Lenders like to see that you’re managing your debt well. That means being able to borrow money sensibly, and most importantly, being able to pay it back. If you’ve maxed out your credit cards and are about to apply for a mortgage, STOP!
Try to reduce your debt first so that future lenders can see that you have a responsible approach to borrowing money.
Applying for credit should be a carefully considered decision
Applying for credit isn’t something that you should do as and when you see a great deal being offered by a lender. In my opinion, it’s something that you should consider carefully before applying, as to whether or not you really need that particular line of credit.
It’s no secret that I hate debt but even I need to apply for credit sometimes. I only apply for credit when I absolutely have to and before doing so, I like to make sure that my credit file is in the best condition it can be.
The mistakes I’ve outlined above are so easily done but they can be easily rectified with a little planning and monitoring. I’d suggest that you check your credit file at least once per year, if not sooner. Always check your credit file before making an important credit application such as a mortgage.
How to check your credit file for free
In the UK, you can sign up to Credit Expert (Experian) for 30 days to check out your credit report for free. A monthly charge of £14.99 applies afterwards, so make sure to cancel within the 30 days if you don’t want to get charged.
For US readers, you can sign up for a free trial today at FreeScore 360 – they have a 7 day free trial if you sign up before 5th July 2016 (monthly membership is $39.95 so cancel to avoid charges).
FreeScore360 gives you access to your credit reports from all three credit bureaus – Experian, Equifax and TransUnion, so you can be absolutely sure that the information you see will be accurate.
If you’re worried about whether checking your credit file will harm your credit score somehow, don’t worry, it won’t! Checking your credit file will simply give you the information you need to go about fixing things if you need to.
Have you checked your credit file recently? Did you find any issues if so?
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Image source: Marco Sciscetti – purchased under license from Fotolia (referral link).