Your credit score is important when applying for a loan. This what lenders look at to determine your creditworthiness. A good credit score is something that we all aim for. However, there are a few things that you are doing that can affect your credit score in all the wrong ways. Here are 5 things that are costing you your credit score.
1. Missing payments
One of the main things that can see your credit score drop from stellar to becoming questionable among lenders is missing payments. A large portion of your credit score is based on how you are able to meet payments. Missing one payment can be something that some lenders overlook, but making this a habit can drag your credit score low and cause lenders to see you as a risky lender. It can limit your loan choice.
2. Not checking your credit report
According to Equifax, one-third of Australians expect a better credit deal from lenders based on their financial history but only 1 in 10 access their credit report before doing this. Your credit report is something that needs to be checked before applying for a credit card. Not only will this show you any outstanding debts and accounts that you need to pay off, but it can also reveal errors that can affect how lenders view your borrowing habits. You can get a free copy of your credit report each year from places like Equifax.
3. Maxing out your credit card
Having a credit card can be a convenient piece of plastic that can help you take care of expenses. Budgeting around your credit can also help you maximise your credit card in the best possible ways. However, falling into the habit of exceeding your credit card limit can affect your credit score. A rule of thumb is to keep your credit utilisation ratio at 30% or less. This will show lenders that you are able to manage credit well.
4. Applying too many times
There might have been a credit card that you were eyeing that comes with the best interest rate, annual fee, and a great reward program. However, your application was rejected. You decided to apply through multiple lenders to increase your chances of landing the card. Applying too many times will lead to financial institutions making an enquiry on your credit report. Having too many credit enquiries can negatively affect your credit report as it will make you appear to be an irresponsible borrow.
5. Defaulting on payments
Defaulting on your credit card repayments is a red flag. It will also be listed on your credit report which will affect your application for other credit cards in the future. It is vital to choose a credit card that has monthly repayments that are within your budget. If you find that you are not getting the best value for your money, then it’s time to change your card.