The seven hidden threats to your credit score


Woman using smart phone mobile device with credit card to make online purchase.

When you're applying for a loan, credit card or mortgage, there are some things we all know will affect our chances of getting a good deal - or a deal at all. We're aware that if we have lots of debt, we have recently missed repayments on a loan, or we've declared ourselves bankrupt in the last few years, we're not going to have the most gleaming credit report.

However, even if you've not put a foot wrong in these departments, there are seven lesser-known things which can stop you getting credit.

1. Switching credit cards

Ever since providers introduced cards offering 0% interest on balances, there have been people who have regularly switched to avoid paying any interest. However, if you're not careful, it can impact your credit rating. In the very short term, every time you switch cards your credit score will plunge, however, whether it then recovers or worsens depends on what you do next.

If you borrow up to the maximum possible on the card, and only ever make the minimum repayments, then lenders may see you in a less positive light, because they are worried about how much of your available credit you are using each month and whether you can afford to repay the debt.

The good news is that you can actually switch cards and improve your credit rating in the medium term. If you switch onto one with a higher credit limit - but don't borrow up to that limit, then over time your credit rating can improve. If you then regularly pay more than the minimum, and bring your borrowing down to 25% of the limit, it will have a particularly positive effect on your rating.

2. Splitting up and moving out

Lenders like stability: the less you change in your life, then statistically the less likely you are to default on your debts. Two of the things they look at to assess your stability are how long you have been married and how long you have lived at your address. No-one expects couples to stay in a failing relationship for the sake of their credit score, but if you find yourself in this position, it's worth taking this information into account.

Fortunately, your marital status and home address are just two factors that are used to assess stability, so try not to change too many others. Lenders, for example, will check how long you have been with your employer, and how long you have been with the same bank, so try to keep the rest of your life as stable as possible until things are back on a more even keel.

3. Forgetting old credit cards

Even if you never use them, if you have old credit cards still open, it can have a surprisingly big effect on your credit rating. When lenders are assessing whether or not you constitute a good risk, they won't just look at the debts you have, they will also look at the amount of credit you have available to you. If you have an old card you've forgotten about with a £2,000 credit limit, this will count as a potential liability.

It's worth getting hold of your credit report from someone like Experian, which will enable you to check for old cards you have forgotten about, and close the accounts.

4. Making several applications close together

You may already be aware that if you make too many credit card applications close together it is a potential sign of financial distress or fraud, so lenders will view you with caution. However, you may not be aware that this applies to any credit application. So, for example, store cards and mobile phone contracts will leave a footprint on your record that can count against you if you want to apply for credit immediately afterwards. If you are thinking of taking out any of these things, therefore, it makes sense to space out your applications.

5. Missing mortgage payments

Most people know that if you have mortgage arrears, lenders will see it as a sign of financial distress and will be very worried about lending to you. However, even if you're not in arrears, if you miss a payment you could harm your credit rating.

This most commonly happens when people overpay their mortgage one month and then miss their repayment the following month - because they have already paid more than they need to. However, usually the agreement with the mortgage company will include a commitment to pay in at least the minimum repayment every month. Even if you have not built up any arrears, missing a month will appear on your credit report and damage your rating.

The best way to avoid this is to set up a regular direct debit into your mortgage, and overpay anything on top of this.

6. Missing a mobile phone payment

Mobile phone contracts are viewed with great seriousness by lenders. You may think that missing a payment - especial if it's for a relatively small amount of money - is far less alarming than missing a mortgage payment or a credit card payment - but the lenders would disagree.

If you don't pay on time, then your mobile phone company could actually put a note on your record to show a problem debt. There have been plenty of instances where this sort of record - even if it's regarding a debt of £10 or less - has stopped people from getting a mortgage.

7. Opening a joint account

When people move in together, it's not uncommon for them to open a joint account in order to pay household money into the account - and bills out - and save on any potential arguments. However, you need to be aware that if you open a joint account with someone you are creating a financial connection with them.

If you both have a solid credit history, then this may not be anything to worry about. However, if your partner or housemate has credit problems - or problems in the recent past - then you will have created a financial link to their poor history.

If this is the case, you can shut the account, completely separate your finances, and contact a credit ratings agency like Experian to ask them to remove the other person's information from your report - called a financial disassociation.

It also makes sense to talk to one another about any debts or debt problems they currently have, and encourage them to seek help from a debt charity.

One common issue with each of these things is that in most cases people are not aware they have damaged their credit rating until they apply for credit. The experts say that it's worth checking your credit report from an agency like Experian on a regular basis, so you can be aware of any issues before they become a problem.