How To (and How Not To) Look After Your Credit Score

Credit report

One surefire way of getting yourself a bad credit reputation is by missing payments or making late payments on your credit accounts. However, there are other less obvious ways in which you can unwittingly harm your credit score if you don’t pay attention to your actions.

Here’s how I came a cropper and how you can avoid doing the same.

Me, Gary and the fridge

I was looking to buy a small under-counter fridge. I’d already located the product I wanted at a local retail store. It cost a very reasonable £129, which I intended to pay for in cash.

After arriving at the store, I made my way to the home appliances aisle, re-checked the price, picked up a ticket to purchase the item, and headed off to the checkout.

En route, I was approached by salesman ‘Gary’,  who seemed very keen to to tell me all about the interest free offer the store were running.

Gary’s short but sweet sales pitch — “May as well, it’s free!” — seemed like a decent argument at the time, so I stashed the cash back in my wallet and followed him to his desk.

After filling out some paperwork Gary disappeared off into the back office to get things finalised. He reappeared 15 minutes later — shock horror — to tell me that the finance company had declined my application!

What happened to my credit?

I couldn’t possibly have been declined — I had perfect credit — or so I thought.

I had a great job that paid well, and all of my regular payments were always paid on time every time. I even had the cash to pay for the item in my pocket!

In fact, I had just learned a hard lesson. Credit refusal doesn’t only happen to people with bad history — it happens to people who misuse their credit too.

Can’t resist the lure of a good deal

To try to understand what had gone wrong, I subscribed to a one month free trial with Experian, one of the UK’s three main credit agencies.

As I expected, my report showed that my payment profile was good. However, I did find a trail of old credit applications that were still showing as active. This consisted of a number of store cards and unused credit cards.

The cards in question had each been taken out to qualify for a one-off incentive, such as ‘10% off a first order’ or ‘6 month interest free’. All had since been ‘filed away’ at the back of a kitchen drawer and never saw the light of day again. However, because I hadn’t cancelled the cards, the unused credit may have been seen by credit companies as an opportunity to build up significant debt.

I also had a number of short-term 0% finance deals on items that I could have easily paid for in full. My problem is that I just can’t resist the lure of a good deal. This could have given potential lenders the impression that I relied on credit more than I actually did.

Having identified what needed fixing, my situation was easy to put right. Here’s what I did:

  1. I cancelled the cards I didn’t use.
  2. I paid off my short-term finance as fast as I could.
  3. I didn’t take out any new credit for 6 months.

Common reasons for failing a credit check

Here are some common reasons you might get turned down for credit:

  • You’re not registered on the electoral roll at your current address.
  • Your credit report contains too much adverse information — such as late payments, defaults or CCJ’s.
  • You’ve made too many credit applications in a short period of time.
  • Lenders don’t think you’re in a position to take on further credit.

Don’t unwittingly make too many applications

Too many credit applications in a short space of time will impact your credit score. One way people unwittingly do this is when applying for payday loans.

Because payday loans are quick and easy to apply for, people who initially get declined by one lender tend to reapply with another straight away. This sometimes happens over and over, resulting in multiple credit checks being recorded in quick succession.

Check your credit score for free

Nowadays, there are plenty of opportunities to get your credit report for FREE, so there’s really no excuse for not reviewing your score regularly.

The ones below are completely free — no free trials — no credit card and bank account details needed — just FREE forever:

I personally use ClearScore and have done for some time. I would recommend it to friends and family.

Key takeaways

Taking out credit should always be a considered decision, not something you do on impulse. Keep in mind that a bad choice today may impact your ability to get the credit you need in future.

Whatever you do, don’t take out credit just to get a deal on something else. Signing up for a store card to get 10% (£5) off a new coffee machine is tantamount to credit abuse.

If you didn’t consider the need for credit long before you got to the checkout, you don’t need it. Stick to your guns and pay with what you already have in your wallet.

Review your credit report regularly. Out of sight is out of mind, and that’s not a good thing when it comes to your credit.