Surprising things that can ruin your credit rating

There are a number of different things that can surprisingly negatively impact your credit score, which can then affect many aspects of your life. For example, you may find it can be harder to get accepted for a mortgage, you could find it more difficult to get access to other types of funding when you are in a  financial emergency, as well as potentially ending up receiving worse interest rates as a result of a bad score if you do get accepted for credit.

At allthelenders, we have decided to take a look at some of the surprising factors that can affect your credit rating that you may not be otherwise aware of. As whilst the majority of us are aware of certain things we can do to improve or maintain our credit score (for example keeping a good credit score but ensuring that outstanding debt is paid off promptly, payday loans are paid in full and on time and closing unused accounts we have on file, but there are other things you should be aware of too.

What is a credit score?

First of all, let’s clarify exactly what we mean by a credit score so that you are fully aware of just how important it is to have a good credit rating.

When lenders decide which applicants that they will accept or decline for a loan, most lenders will check the applicant’s credit score to make their final decision. This is because a person’s credit rating enables lenders or banks to determine a person’s creditworthiness, and how feasible it will be for a person to be able to make repayments promptly and in full.

As you may already know, lenders are not obligated to accept anyone for a loan who is considered a potential risk and can decline anyone who appears to have a bad history of credit. This is why having a good rating is so important as essentially the better the credit score one has, the greater the chance the applicant has of being accepted for credit, or at the very least receiving better interest rates when it comes to taking out a loan.

Having a lot of aliases

Where you aware that having multiple aliases (for example having a married name at work but your maiden name at home) as being known under one name at work (your married name) can end up negatively affecting your credit score? The reason why is that it can make certain lenders feel wary by suggesting that you may be trying to engage in the fraudulent activity by having so many different names on file. As a result, this can badly affect your score, so it is worthwhile checking you do not have multiple aliases on file.

A financially linked partner with poor credit

You should take into consideration the fact that if you share a joint mortgage or a specific bank account with a spouse, relative or friend who has bad credit rating score themselves, this can also then affect yours too. That means that even if you have taken every measure to make sure your finances are in good shape, you could still end up getting declined for credit. Consequently, you will need to dissociate yourself from accounts you share with someone with a bad credit rating if you want to improve your score.

Avoiding credit entirely

It is not necessarily the case that by not having had to borrow any money at any point in your life, or have had no history of debts on file means that this would contribute positively to your credit rating. In fact, it could very well end up having the opposite from the intended effect.

Why? Lenders may be concerned that there is no record of you being able to manage repayments promptly at any point in your life, which can put them off from letting you access credit from them, as you could be considered as a potential risk. There are ways in which you can tackle this, however. One thing you could look at doing is getting a credit builder card, making small monthly payments on it and repaying them on time in order to demonstrate your ability to handle credit effectively.

Not using your credit card

Don’t make the mistake of taking out a credit card and then never using it, as this can work against you. You may think not using your credit card could only be a positive thing, but it will mean that companies will put your card down as ‘inactive’ which could lead it to be closed completely or impact your credit utilisation rate.

Applying for multiple loans or credit cards at once

Another surprising thing that can affect your credit rating is making too many credit applications within a short period of time. Why? This can signal as a warning sign to both banks and lenders, as it suggests that making so many applications may mean that you are in financial difficulty, which means that you may end up struggling to make repayments in the future.

This is why it is so important that you spread out applications for credit. This is because each time you apply for credit with a lender, a ‘credit search footprint’ is left on your file. If your file shows that you have a number of declines,  this will reduce your chance of being accepted for a loan elsewhere.

As a rule of thumb, it is recommended that you:

• Limit credit applications to around three per year
• Wait to hear back from a lender before making another application
• You should also be making sure that you ask for quotes from them before applying to see if it will meet your credit requirements
• Use eligibility checkers too before making an application for a loan. This will allow you to gauge your likelihood of acceptance, meaning that you can then determine whether or not it is in your interest to apply. Nevertheless, you should keep in mind that eligibility checkers are not necessarily a guarantee for acceptance.

Withdrawing cash on a credit card

Multiple cash withdrawals on a credit card can cause concern amongst lenders, implying to the lender you may be a risk or that you may be in financial difficulty, making your ability to manage debt effectively difficult.