March 11, 2021
How to Avoid Bad Habits that Damage Credit Score?
By : Ellie Brown
Even with regular repayments and timely payments, the credit score might not improve. There could be various reasons associated with it. Some of them include unused credit cards, account closure, not reporting to the authorities, unavailability of voter card, etc.
A low credit score can lower the chances of availing of new loans and increase application rejection instances. It can become problematic; especially for bad creditors those miss payments casually, don’t have emergency funds, or make minimum payments.
However, many of these bad habits that damage a UK citizen’s credit score can get easily solved. For example, making regular minimum repayments can lower expenses for the time being; however, it increases the customer’s payable interest in the long.
Therefore, covering more than the least amount can help resolve this issue and decrease the time of recovering from debt.
5 Solutions for Bad Habits that Tarnish the Credit Score
● Defaulter Ties
Credit reports have a significant impact through defaulter ties, especially on an existing loan. Continuing a loan with such a person makes the credit of a person joint with each other. Therefore, lenders may hesitate against approving a new application from such borrowers.
The same becomes true for your partner if your credit history has a few hiccups. Therefore, before opting for guaranteed loans from direct lender, the best practice would involve reviewing the credit history and making considerable contributions to improve it.
Additionally, it would be wiser to opt for a guarantor loan with a partner that has a bad credit rating or hiccups in history. It would avoid becoming the sole defaulter responsible for money management.
● Closing Accounts
Most borrowers think that closing a credit card account avoids unnecessary expenses. However, they don’t consider the direct impact of their action on the credit report. Account closure diminishes the credit availability to a person.
Therefore, the credit report receives an enormous hit and has a negative impact instead of regular credit usage. But instead of cancellation of credit card or closing accounts, a person can avoid taking any action until the promotional period.
Therefore, the person wouldn’t experience any annual charges until the period expires. Also, the availability of rewards and credits would open doors to a better score and increases the chances for approval of a loan application.
Additionally, lenders wouldn’t get the idea that the person required a large amount of emergency funds. It is often a primary assumption during account closure. Besides this, lenders would receive a message that the person doesn’t make unrequired expenses.
● Excessive Spending
Excessive spending can lead to bad credit scores, just like account closure. Lenders receive the message that the account holder is credit reliant. Besides this, you would incur excessive interest rates unless the card has an ongoing promotional scheme.
Moreover, recovering from such a bad debt would become challenging as it would open doors to bad credit loans with unscrupulous interest rates. Therefore, your financial status would take a large fall.
The problem of excessive spending can get resolved by initiating a cap on the account that requires minimum repayment. Additionally, recovering existing expenses with instalment adjustment by talking with the lender can prove useful.
● Surplus Loan Applications
As such, submitting a loan application doesn’t impact the credit score. However, the credit report enlists all the applications. Therefore, the lender, bank, or financial institution can review surplus submissions as irresponsible.
Additionally, lenders may even opt to conduct a hard check based on the type of loan. Therefore, each time the action occurs, it directly impacts the score. Besides this, rejection can lead to a much worse result.
Instead of applying on different channels and with various lenders, it is better to apply with not more than two sources. Also, make sure to close or cancel the existing submission if you have received the loan.
It will show that you take responsibility for your finances to future lenders, mostly if done promptly.
● Unutilized Credit Cards
Lenders conduct a soft or hard check before providing a loan to a borrower. However, no activity on existing credit cards doesn’t show debt management capabilities. It can become more problematic, especially if the person has no history to showcase.
Moreover, a single payment cannot provide a debt management image to the lenders. Therefore, to resolve this problem, the account holder must have uninterrupted repayments and payment.
It will create a responsible borrower portfolio, especially when the person is searching for new loans to recover from debt. However, direct lenders can provide instant doorstep loan as an option.
But skipping or missing timely repayments for such loans can cause a more considerable consequence on the credit report.
● Other Resolutions
As mentioned before, making minimum repayments on credit cards can lead to more considerable sums due to the ongoing interest rates. Similarly, not having emergency funds to recover existing loan repayments can impact the credit score.
It can also lead to options like bad credit, personal, or unsecured loans. Therefore, emergency funds unavailability, especially when you lost your job, suffered a market collapse, or need money for holidays.
Likewise, not forwarding unnecessary charges on the credit report can damage it. Therefore, it is crucial to pay attention to all outgoing expenses, especially loans, charges on credit cards, etc.