7 small mistakes that can break your score

By Michael Lloyd

You may assume the trick to maintaining a healthy credit score is as simple as paying your credit card bills on time and never going over your limits. While it's true that these are two major rules of keeping a good score, many lesser-known factors could drag your score down.

If you've recently been rejected for credit despite having a decent income and a clean payment history, you may need to consider some of these issues:

1. Having a high credit utilisation ratio.
When companies run a credit check on you, they look at how much of your available credit you're using.

"Using a significant proportion, or all, of the credit available could indicate that an individual is financially stretched," an Equifax spokesperson said in an emailed response to questions.credit-mistakes

Try to keep your credit utilisation ratio (the amount of credit you use versus how much you have available) to around 30%. This ratio counts for about 30% of your credit score.

2. Failing to register to vote.
Apart from keeping you from participating in any elections, failing to
register to vote with your local authority can damage your chances of getting credit.

Some lenders won't even consider you if you're not on the electoral roll, while others might request proof of residency, which will hold up your application.

"The electoral roll is used by many companies for identity verification purposes and to combat identity fraud," the Equifax spokesperson said.

You can register to vote at aboutmyvote.co.uk. If you're not eligible to vote
in the UK, contact the three major credit reference agencies -- Equifax, Callcredit and Experian -- and ask them to add proof of residency to your credit profiles. This will typically require you to send them bank statements or utility bills.

3. Not paying disputed charges.
If you notice a charge you didn't make on your bill, you're obviously not going to want to pay it. However, if you can afford it, it's always better to pay the bill and then be reimbursed after the situation is resolved.

Failing to pay -- even disputed charges -- may show on your credit file as missed instalments, which will damage your credit score. You might be able to correct your credit file once the dispute is over, but this could take time.

Get in contact with the Financial Ombudsman Service if you think a lender or service provider has dealt with a dispute unfairly.

4. Closing oldest accounts.
Having too much available credit can make lenders wary, so shutting down old accounts can have a positive effect on your creditworthiness, even if doing so might increase your credit utilisation percentage.

"If an individual has an account that they are not using then it is important that they shut this account down," Equifax's spokesperson said.

However, be choosy about which ones you close.

When closing accounts, bear in mind that keeping your oldest one open could actually have a positive effect on your credit file. The longer your credit history stretches back, the better.

5. Making multiple credit applications.
Every time you apply for new credit, the lender makes a hard inquiry on your credit profile. Lenders don't like to see too many of these in a short space of time, so applying for multiple credit accounts within days or weeks of each other isn't a great idea.

Ideally, look to leave about six months between applications, regardless of whether your applications are accepted or rejected.

The only exception may be if you are shopping around for an auto or home loan. If you run a full application, it will show as a hard inquiry, but it is possible for lenders to run soft searches for purposes such as obtaining an offer on a mortgage in principle (a statement from lenders saying what they are prepared to lend you, subject to approval of the property). These will appear on your credit file, but are not as damaging as multiple hard inquiries, such as credit card applications.

6. Taking out a payday loan.
Some mortgage underwriters have let it be known that they're not keen on seeing payday loan agreements on applicants' credit files, even if the applicant has managed the loan well. The bottom line: lenders view payday loans as a sign you've had problems making ends meet, which makes them wary of giving you more loans.

However, this is up to the lender's discretion. Though a payday lender will report repayment activity to credit bureaus, as long as you manage it well, it shouldn't affect your credit any more negatively than any other product.

7. Failing to check for credit report errors.
It might not surprise you that banks, credit card issuers and other lenders occasionally (and accidentally) send incorrect information about their customers to credit reference agencies. In addition, agencies themselves are not immune from making the odd mistake.

As such, it's important to check your credit file regularly for any errors. You can run a free multi-agency check with Check My File, or go directly to one of the credit bureaus to claim your £2 statutory credit report.

See related: The cost of a poor credit rating, Watch out for credit repair services, How to fix mistakes in your credit report

Updated: 25 April 2017