6 Reasons Your Credit Rating Might Have Dropped
Our credit rating is something that is unique to all of us, based on our individual financial situation. Keeping track of your rating is a great way of making sure you’re handling your finances as best you can and means that you can avoid being rejected for any loans you apply for in the future. If your credit rating has dropped and you’re unsure why, we’ll take a closer look at some of the factors that can affect this below.
If you need a loan quickly due to unexpected expenses, choosing a payday loans direct lender can help – these lenders consider bad credit applications, and make decisions based on affordability rather than credit score.
What is a credit rating?
Credit ratings help potential lenders work out how likely you are to pay back a loan. Your credit rating will look healthier if you demonstrate that you are able to pay money back on time, whether that’s through credit card payments, mortgage payments or car finance. Building a good credit rating means that you will have a good credit history. In general, if your credit rating is good, you are more likely to be approved for loans with a better interest rate.
Factors such as age, earnings and spending habits can all impact your credit rating, so keeping track of how your rating looks, means that you can take necessary steps to improve it. Here are a few reasons why your credit rating may have dropped.
- Missing a payment
One of the most obvious reasons that your credit rating may have dropped is if you’ve missed a repayment. This could be anything from a credit card bill to a phone bill payment. If your credit rating is generally in good shape, missing one payment or paying it a little later than normal won’t make too much of a difference. However, if you miss repayments regularly, this can have more of a negative effect on your rating. As a rule, the longer you tend to leave a bill unpaid, the heftier the damage to your credit rating will be.
- Applying for loans
If you’ve been applying for credit lately, you may see your rating decrease. One of the main reasons for this is because lenders will carry out research that has a negative impact on your score. It can look even worse if you’ve applied for several different loans at one time – this makes the lender think you’re desperate for funds, and that you’re trying a few places to ensure you’re successful. Unfortunately, this doesn’t come across very well to lenders and they may not trust that you will be able to pay them back.
- Closing an old account
There are a couple of reasons that you might close an account, like if you don’t use it anymore or if you’re looking to manage your money better – closing an extra account can be helpful. However, this could be a contributing factor when it comes to a drop in your credit rating. Closing an account means you generally have less credit available, and the average age of your accounts will fall. Both factors can result in your credit rating taking a hit.
- Moving address
Sometimes situations change and moving address can’t be helped – but this doesn’t just refer to one house move. Moving around a few addresses in a short period of time could cause your credit rating to drop. Lenders need to see stability from the person borrowing funds from them, so frequent changes of address may lead to them to thinking the money won’t get paid back. This can have a negative impact on your credit score.
- Settling a court agreement
This is most likely one of the most damaging factors when it comes to your credit rating. Declaring yourself bankrupt or receiving a county court judgement for any reason can have a hugely negative impact on your score. It tells lenders that you have failed to make payments on time in the past, to the point that a legal and governing body has had to step in, meaning that in their eyes, the risk is likely too great to lend to you.
- Reaching a credit limit
If you use a credit card, you’ll usually have a spending limit set on your account so that you can’t exceed a certain amount that you might struggle to pay back. If you hit your credit limit regularly, this can have repercussions when it comes to your credit rating. Constantly reaching your limit tells potential lenders that you may not be able to afford to make any further repayments – this then leads to an overall drop in your credit rating.
