Has your credit score dropped and you’re not sure why? If it’s unexpected then it can be frustrating. However, there are a few reasons why your credit score could have dropped. Some of the reasons below can be temporary dips and some may take longer to recover from. But whatever the reason for the impact on your current credit score, our guide below can help you!
Missed or late payments
It’s no surprise that missed or late payments have a negative impact on your credit score and even just missing one payment can have the ability to knock your score down. Your payment record is listed on your credit report and so are missed and late repayments, which are also viewable by potential car finance lenders. This can affect your chances of getting finance in the future. One missed payment will have less of an impact than if you repeatedly don’t make repayments. However, you should always make any payments on time and in full to help improve your credit score and your ability to get finance.
Related – What is the lowest credit score needed for car finance?
Higher credit usage
If you’ve recently spent more on a credit card or store card, then you may see your credit score drop. Your credit score considers how much of your credit you are using which is referred to as your ‘credit utilisation rate’. Having a credit limit for a credit card is a way of making sure you don’t borrow more than you can afford to pay back. To show that you are not struggling with credit, you should try to only use at least 50% of your available credit and if you really want to improve your score, you should try to use below 30%. Having high levels of credit usage can indicate to lenders that you can’t handle anymore.
Closing old accounts
Two factors that help to improve your score are how long you’ve had credit for and the type of credit you have. Lenders like to see a mix of different credit and also credit accounts which you’ve successfully maintained for a number of years. If you’ve recently closed an old account, your credit score may have been negatively affected. You can close old accounts if you no longer need them but, in some cases, it can do more harm than good. For example, closing a credit card account can reduce your available credit and increase your credit utilisation ratio.
Multiple credit applications
When you apply for credit, lenders will usually run a credit check on your file. If you’re worried about your chances of approval you may be looking for car finance with no credit check but the good news is our application form does not affect your credit score! Making multiple applications for finance, loans, or credit and being declined car finance can have a negative impact on your credit score. Many lenders use a hard search credit check which is recorded on your credit file and can harm your score. When you apply with us, we only provide a footprint-free ‘soft search’ which allows us to take a quick look at your credit file without it being recorded on your file. We can then compare lenders for you with no impact on your score.
Apply for car finance with no impact to your credit score
Frequently changing address
If you have recently moved house or move around a lot, it can affect your credit score. To a finance lender, it can look like you are not in a stable position for finance if you frequently move around. If you’ve just moved address, you can see a dip in your score, but this should be for a short time only. You can help lenders to verify your location by registering on the electoral roll at your new address.
Opening a new account
If you’ve recently opened a new account or entered into a new finance agreement, your score can change temporarily. However, once you start making repayments on time and in full, your score should recover quite quickly. However, setting up lots of new accounts in a short space of time can indicate that you are struggling with debt and have a more long-term impact on your credit score.
Your credit file is inaccurate
You should get into the habit of checking your credit score regularly and making sure all your information is accurate and up to date. Having information on your credit file which is inaccurate can harm your credit score. If you recently noticed a drop in your score for no obvious reason, you should also check your recent applications for finance as you may have been the victim of fraudulent applications in your name.