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Why Has My Credit Score Gone Down?

It can be scary to discover that your credit score has dropped significantly. If you are confused by the sudden change, you may need to look a little closer at what could negatively impact your score. In the UK, several factors can affect your credit score, some of which might not be immediately obvious. In this blog, we will explore common reasons that could explain a credit score drop, shedding light on the complexities of credit management.

You Moved Recently

Changing your home address can affect your credit score. When you move, it is crucial to update your current address details with all financial institutions and ensure you are registered on the electoral roll at your new address. The electoral register plays a significant role in credit scoring as it helps verify your identity. A recent move might disrupt this verification process, temporarily impacting your score.

You Closed a Bank Account

Closing a bank account, particularly an old one, can negatively impact your credit history. This is because the age of the accounts on your credit file is a factor in calculating your credit score. Older accounts generally improve your score as they demonstrate stability and long credit history. Moreover, closing an account can reduce your total credit limit, affecting your credit utilisation ratio – another important element of your credit score.

You Have Applied for a Few Credit Cards

Applying for new credit cards quickly can lead to multiple hard inquiries, or 'hard searches', on your credit file. These inquiries indicate that you are seeking new credit, which can temporarily lower your score. Credit reference agencies consider frequent credit applications as potential signs of financial distress, thereby negatively impacting your credit report. Before you apply for a new line of credit, consider whether it is worth the risk to your credit score.

You Haven't Missed a Payment

Maintaining a perfect payment history is beneficial for your credit score. However, even without a missed credit card payment, other factors, such as payment arrangements or a high utilisation rate of your total credit limit, can obscure the benefits of maintaining a good payment history. These can cast a shadow over the positive aspects of timely payments, leading to a lower credit score. You should avoid using all of the available credit limit on your credit cards, if possible. Keep your utilisation rate below 30% and check your credit usage regularly.

Your Account is in Arrears

If one of your accounts is in arrears, this means there are overdue payments. Being in arrears can significantly harm your credit score, indicating a lapse in fulfilling your credit obligations. Potential lenders can see this situation recorded in your credit report, signalling a risk in lending to you.

You Forgot About an Old Account

Forgetting about a credit account may lead to unintentionally missed payments or accounts becoming inactive, which might be viewed as a negative factor by credit bureaus. Inactive accounts can also be closed by the creditor, affecting your credit utilisation rate and the average age of your accounts, both of which are important to your credit score.

How Can I Increase My Credit Score?

You should regularly check your credit report from TransUnion or from other major credit bureaus to maintain a good credit score. This practice helps catch and correct any inaccurate information and protects you from being a victim of identity theft. Understanding how much credit you have available, your credit utilisation and managing your credit card accounts effectively are all crucial steps in personal finance management.

It is clear that various factors can have a negative impact on your credit file. While a single factor might not drastically change it, combining several over a long period of time can result in a significant drop in your credit score. Managing these elements ensures that your financial health remains intact and your credit score reflects your creditworthiness as a reliable borrower. Regularly checking your financial details, keeping track of all your accounts and understanding the principles of credit utilisation will help you manage your credit report better in the long run.

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