Free advice line 0800 520 0923
Your credit score is your passport to a house, car or any other major purchase. A good credit score not only gets you the money you need but on the best terms, so knowing how to avoid damaging your credit rating is vitally important. To help you get the best loans, mortgages or credit cards, we have listed 10 ways to avoid bad credit. To preserve your lending eligibility, you must avoid the following:
Late payment on loans or credit cards will account for about 35% of your credit score. Most people with a poor credit rating have consistently paid bills late or have been guilty of underpaying. Keeping your credit score in good shape is easy if you pay bills in full and on time.
Skipping credit card or loan repayments will detrimentally affect your credit rating and at the same time elevate your risk potential. Several missed credit card payments will have your account terminated (charged off) or your loan amount recalled in full, plus interest. If you are unable to make a payment always contact your lender in advance who will try to accommodate your situation as much as possible.
Consistently missing loan payments can lead to having your account ‘charged off’ or in other words, closed. A charged off account means you are no longer able to make any transactions from that account and that includes making purchases. Instead you will be asked to repay the balance of a loan in full, with interest. A ‘charged off’ account is reported to credit bureaus that record the default in your file.
A third party company can be used to collect the debt you owe the lender. A debt collection agency may get involved prior to the account being closed or after depending on the lender. If a lender has recruited a debt collection agency to reclaim your debt, credit agencies will be informed that the lender have given up asking you for money. Unsurprisingly, this is another major culprit behind poor credit scores.
Missing repayments on a loan is a serious matter in any lender/borrower relationship and demonstrates an inability to maintain your part of an agreement. Defaults of this kind are reported to credit bureaus and are viewed very badly by any future lender. If you are unable to make the repayments, try asking your lender to adjust the amount or the term of the loan.
Bankruptcy does to your credit rating what a wrecking ball can do to a Wendy house. Bankruptcy is recorded on your credit history for 7-10 years making any kind of credit very difficult to obtain. Should you be considering bankruptcy as a debt solution, make sure you know the consequences and possible alternatives first by clicking here.
Late or missed mortgage repayments can lead to your home being repossessed. A history of repossession will make any future mortgage applications extremely difficult. Visit our pages on Mortgage Arrears for details on how to keep your home.
A lender going through the courts in order to recoup your debt will significantly damage your credit file. If you have been served with a CCJ it is important to pay it immediately - lenders will always view a paid judgment better than an unpaid judgement.
Your credit rating will suffer as a result of an IVA and while not quite so badly had you been made bankrupt, gaining credit will still be difficult. There may be a hangover period once the IVA term has been completed of approximately one year.
Too many ‘foot prints’ on your credit file will alert potential lenders to your high dependency on credit. Avoid making more than a couple of credit applications at any one time. Instead of making loan or telephone applications over the Internet, call a lender to first discuss your lending potential. If you are likely to be refused credit, you can withdraw from the application process before it is recorded on your credit file.
