7 factors that can negatively affect your credit

11 August 2021

Mortgages

Jonathan Smith

Many people have a love or hate relationship with their credit history. When it’s strong, it can help to secure life-changing finance, whether that’s a mortgage, instalments to pay for a honeymoon or a loan to establish a business. But when you’ve had a difficult time with your credit, you may find that it limits some of your options.

There are quite a few factors that any loan or credit provider will take into consideration when reviewing your record. And, when you’re trying to build a positive approach to your credit, it’s worth knowing about the financial difficulties that can hold you back.

Below, we’ve rounded up seven factors that can negatively impact credit so you can be aware of the effect they could have.

1. Late or missed payments

When you take out credit, but go on to miss a payment deadline by either paying late or not paying at all, these will be recorded on your credit history. Many providers will see these instances, then take it as a sign that you’ve struggled to make repayments in the past. Late or missed payments will stay on your record for six years.

2. Defaults

A default occurs when a credit provider closes your account due to a number of missed payments, typically over three to six months. The amounts involved don’t even need to be large — it’s possible to acquire one over missed payments of just a few pounds. A default will remain on your credit history for six years before being removed.

3. County court judgements (CCJs)

Should a credit or loan provider believe that you will not be able to repay the amount you owe, they can escalate the dispute to the courts by applying for a county court judgement (CCJ) against you. If successful, you could be told to pay the amount back in full or instalments, as well as having the opportunity to dispute the decision.

A CCJ will remain on your credit record for six years if it’s added to the Register of Judgements, Orders and Fines, but it won’t be added if you pay within a month or are successful in disputing the decision. However, the late payments and/or defaults that led to the CCJ will still remain, so your credit record could be impacted negatively.

4. Overuse of credit

When a lender reviews your credit history, they are looking for signs or behaviours that indicate you might be a risky borrower. If you regularly max out your credit limits across your accounts without clearing the balances, your report will show you are regularly utilising a high percentage of your available credit. Many lenders take this as a sign that you are dependent on borrowing, and therefore a risky prospect.

5. Applying for credit in a short period

Another behaviour many providers view as a warning sign is if you have made a series of credit applications in a short period of time. When you apply for credit, a hard check is carried out and recorded on your history, which is then visible to other lenders. This means that if you apply multiple times in quick succession, many companies will see this as a sign that you’re struggling financially or are being denied credit elsewhere.

6. Having a short credit history

Credit and loan providers like to lend to customers that have a proven track record for responsibly managing their debt. Unfortunately, this factor can work against you if you only have a short credit history, as, even if you intend to be a sensible borrower, you do not have the evidence they’re looking for. If this is the case, it can be worth building up your credit record before applying for that important finance.

7. Not being present on the electoral roll

When you register to vote by joining the electoral roll, your details are recorded on your credit report. This makes it easier for lenders to confirm the likes of your name and address when they check your record. If you aren’t on the electoral roll, they cannot do this, so it may adversely affect your credit. As a result, it’s something that is worth doing (it’s also required by law, even if you don’t plan to vote).

Building a positive relationship with your credit history

While there are a few factors that can negatively impact your credit, it’s important to remember that, whatever your situation, there will be steps you can take to improve things. And, building a positive relationship with your credit is a great place to start.

Seeking out your own credit report can help you to get an idea of what your current situation is — you can do this by using a service like Experian or Equifax, which supply reports to lenders. From there, you can judge where you can improve and concentrate on building up a better score.

It can also be helpful to be aware of specialist products on the market that cater to those who are building their score. For example, our Near Prime mortgage range is designed to assist those with less-than-perfect credit. We don’t take your score into account when we’re assessing your application, which can be helpful if you are starting to improve your situation.

Please note: Before you take out any product, we always recommend that you get advice from an independent broker — read our blog post to find out why.

Lastly, if you ever find that you will have a problem that will affect how you manage debt, it’s best to be proactive and contact your lender to discuss your options. If you’re an Atom customer, you can visit our money worries hub for information on the next steps you need to take. However, remember that no matter who your credit or loan provider is, getting help always starts by getting in touch.