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When you apply for a loan, credit card or mortgage, your lenders will use credit checking agencies to ascertain your overall credit rating. Your credit score is worked out using a number of different factors. Here’s Asteria’s list of the ten most important things to consider when thinking about your credit score.

Late Payments

Late payments are the number one reason that credit scores go down. Though one or two missed payments should not usually affect your overall credit rating as significantly as something like a default or a court order, repeatedly missing payment deadlines will steadily decrease your standing with loan and credit card providers.

Court Orders

If you have been summoned to court because of non-payments of debt, this will be recorded and stay on your file for five years. Lenders will need to see that you are capable of managing credit before you can borrow at the same rates as those with fair or good ratings. Providing you demonstrate responsible money management habits for a consistent period, court orders do not have to mean bad credit for life.

Moving too often

This is a factor in the UK, the USA and can also be taken into consideration in the Philippines. Having multiple addresses in a short period of time automatically brings your credit score down as some lenders believe this shows a lack of stability. This is not always the case in reality, and it can be quite frustrating for those who travel a lot or who is work requires them to move around on a regular basis. Providing that your financial activity is properly managed, this factor shouldn’t usually cause too many problems unless you already have a poor credit rating.

Using Credit Cards at ATMs

Withdrawing cash from a credit card account is convenient and often quite helpful in emergencies, but with the continued spread of contactless payments, it is rarely necessary these days. Whenever you take out cash from a credit card account, you can expect to pay a fairly high rate of interest and also see a minor impact on your credit score. If you are able to pay back what you have borrowed immediately, this will not be an issue for you. But withdrawing cash regularly will have a cumulative, long term effect on your rating, especially if you let the debt build up too much.

Requesting too Much Credit at once

Applying for more than one loan in any 12-month period is rarely advisable. Many people see a reduction in their overall credit score after applying for loans too frequently. Be mindful of who you have contacted and what you have asked to borrow. Making several applications for large amounts of credit at the same time will usually backfire, unless you have a good to excellent rating. It makes sense to take time over decisions like choosing to take out a personal loan, so never rush in to borrowing more than you really need.

Defaulting (Being unable to pay off a debt)

Defaulting is not a good situation. It means that you are unable to pay off what you have borrowed and will usually involve legal proceedings. Generally, lenders will accept smaller payments towards the overall figure until you are in a position to begin repaying what you have borrowed, but this is not always the case. A default will be recorded on your credit report and will remain there for 5 years or until you have paid off the remainder of what you owe. If you think you may end up in this situation, it is always advisable to seek advice from debt management charities. Help is available and though this situation is not good, it is possible to recover from with the right guidance.

Not Registering to Vote

If you are not registered to vote, lenders are less likely to offer you a good rate of interest. This may not be a particularly significant factor for those with good credit histories and a track record of responsible financial behaviour, but for first time borrowers or those with less than perfect credit scores, it can be an issue. It usually takes a matter of minutes to register to vote and providing you can offer basic documents such as a passport or birth certificate, it should be a very straightforward process.

Using an Overdraft too Often

Overdraft facilities can be very useful, but they are also quite expensive. If you consistently use your overdraft, credit checking agencies will notice this and inform your lenders. A customer who is consistently in the red is less likely to be offered a competitive rate of interest as they may be a higher risk. The best way to combat this is to make sure you do everything you can to minimise how much you use your overdraft facility. Cut out wasteful spending, pay into your bank account regularly and keep track of your purchases by using apps and online banking.

Requesting Payment Holidays

Payment holidays used to be fairly rare and were only really offered in emergency situations, however, recent events mean that most responsible lenders are now offering this an option to the vast majority of their customers. Though payment holidays will help you to have a little more cash in the short term, think carefully about the longer-term consequences. Your credit rating will be affected, and you are likely to end up paying a higher rate of interest when you do begin repayments again.

Only Making Minimum Payments

Making minimum payments is a way of paying off your debt at a rate that suits you, but it can also mean that lenders are less likely to offer you the best rates. If possible, pay more than the minimum and you will generally notice a steady increase in your credit score. Making extra payments on top of the minimum you owe can also be a good strategy, though this is not always possible, paying when you can show financial responsibility.

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