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Why Has My Credit Score Gone Down?

So, your credit score’s gone down. No doubt this is news you’re not thrilled about, especially if you weren’t expecting it, or if you’ve been working hard to improve or maintain your score. So, why has it happened? Is it something you did, or didn’t do? Let’s find out.

What can affect your credit score?

It’s important every now and then to remind yourself what information is used and analysed to calculate your credit score. Knowing about this could help you to quickly work out why your credit score’s changed, without having to dig too deeply:

  • Account balances – how much you owe in loans, credit cards and other borrowing counts towards your credit score
  • Payment history – whether you’ve always been able to make your payments, and if you pay more than you need to, will be weighed up and included in your credit score
  • Credit utilisation – utilisation means how much of your credit you’re using on accounts where you have credit limits. This will be analysed and counts towards your credit score
  • Public information – information from the electoral roll and other public databases like the one where CCJs and bankruptcies get recorded counts towards your credit score, too
  • Address history – how long you’ve been at your address and whether all your accounts are registered to this address will be included in your credit score calculation
  • “Hard” searches – the number of “hard” credit checks (which are done when you officially apply for credit, among other things) that are on your credit report is also taken into account

You can read more about some of the situations that could cause your credit score to drop, and which parts of your credit score are affected by each situation, next.

How does a missed payment affect your credit score?

Missing a payment is one of the most obvious reasons your credit score could have dropped, as it’s a clear sign you’re not able to keep up with your obligations. Every month, your account providers will update the status of your account with the credit reference agencies, including whether you’re up to date on your payments or not. If you’ve missed payments or made them late, then it’ll show, and will affect your credit score. If you’ve missed numerous payments, you may also have defaults on your credit report, and some lenders may even file for a CCJ against you as a last-ditch attempt to recover what you owe to them.

What’s the damage?

How much your credit score drops after a missed payment depends on two things. First, how recently the payment was missed and second, whether it’s clearly a one-off or a sign of bigger financial difficulties. A single missed payment a few years ago can be chalked up to a temporary blip and won’t impact your credit score much. If you miss payments often, though, and currently have one or more payments overdue, accounts in default, or CCJs registered against you, then this is a sign that you’re experiencing financial difficulty. In the most severe situations, the impact on your credit score can be so great that you’re not able to borrow again for a few years.

How to fix it

If you’re generally able to make your payments and simply forgot this month, then making the payment as soon as you can to catch up is important. Then, set up a direct debit or standing order from your bank account to make the payment every month so that you won’t forget again!

If you’re not able to get back on track for whatever reason, then it’s important that you speak to your account provider to let them know. We know this isn’t a conversation you’ll be looking forward to, but you’ll be surprised how understanding and flexible many companies can be. They may be able to help you find a more affordable way to pay, and take action to stop the situation getting any worse, like freezing interest and charges, not placing a default on your account, and holding off on any legal proceedings.

Will making a big purchase make my credit score go down?

Big purchases can affect your credit score in a number of ways, depending on how big the purchase is and how you pay for it. If you can, it’s always best to save up and pay with cash to avoid borrowing to buy things. But this isn’t possible in all situations, and using credit may be the right choice for you.

When you borrow money to make a purchase, the first way your credit score will be impacted is by the amount of extra debt you’re taking on. How much you owe is recorded on your credit report, will be taken into account by lenders if you look at borrowing more, and could make you less likely to be approved. You could also be impacted by a “hard” search on your credit report if you’re taking out a new loan or credit card to fund this purchase.

Finally, if you’re using a credit card for this purchase, your credit score will also be affected by your credit utilisation. Credit utilisation is the name given to the percentage of the credit available to you that you’re using, and making a big purchase will undoubtedly push it up.

What’s the damage?

How much your credit score drops as a result of making this purchase really depends on the rest of your situation. By itself, making a big purchase using a loan or a credit card may not do much to your credit score. But, when combined with your existing financial situation, the impact could be much greater.

To start with, making this purchase will increase the amount you owe, overall. If it’s the only money you’ll owe, the impact will be less than if you’re adding to existing and potentially high levels of borrowing. The more you take on, the more you’re stretching your finances, and so the greater the impact on your credit score.

Equally, if making this purchase means the first application for credit you’ve made in a while, then the impact of the “hard” search that’s registered on your credit report will be much less than if this is the latest in a line of applications you’ve made. Lenders typically consider having 3 or more “hard” searches done on you in a year cause to raise a warning flag, as it can look like you’re overly keen to get your hands on more money, and might be taking on more than you can afford.

Finally, there’s the impact this purchase will have on your credit utilisation if you’re using a credit card. Remember, this is the percentage of the overall credit available to you that you’re using. Lenders like to see you using your credit, of course. But, they look at high utilisation – where you’re using more than 75% of the credit available to you – as a sign you’re relying on credit to get by. If your credit utilisation is less than 30%, then lenders see this as sensible use and a sign that you’re generally living within your means. So for example, if you have a credit limit of £2000 on your credit card, and have a balance of £1000, then your credit utilisation is 50%

How to fix it

Making a big purchase, whether in cash, using a loan, or on a credit card, is usually a well-thought out decision. What the impact on your credit score would be probably crossed your mind – that’s why you’re reading this, after all – and you may well decide that it’s a means to an end. 

As long as you manage this borrowing well, you can bounce back and your credit score could become better than it was before you borrowed. Make sure you always make your payments on time, every time, pay off as much as you can afford every month to reduce what you owe and credit utilisation quickly, and avoid applying for more credit if you can to keep a check on the number of “hard” searches recorded on your credit report.

I only applied for credit, I didn’t get the loan, has this made my credit score drop?

Applying for credit might seem harmless, but it can have a big impact on your credit score. When you put in an official application for a loan, credit card or other type of credit, the provider will register a “hard” search on your credit report, whether you end up getting credit from them or not. “Hard” searches are analysed and count towards your credit score, and can make it drop.

What’s the damage?

How much a “hard” search on your credit report affects your credit score depends on if it’s the only one you’ve had in a while, or if it’s the latest in a line of searches carried out on you. Having a single hard search on your credit report that was carried out when you applied for credit you genuinely needed is very different to having five or six searches by different providers in the last few months.

As a rule, having one “hard” search registered on your credit report in a 12 month period is seen as pretty normal behaviour, and won’t dent your credit score too badly. If you have more than one, though, then expect your credit score to drop more. The more searches you have, the bigger the dent. A lot of “hard” searches – and by a lot we mean three or more – on your credit report within a year of each other is a sign that you could be borrowing than you can afford. Lenders always want to make sure that you can afford to repay whatever you borrow, so any sign that you might not be able to is a red flag for them and will cause a drop in your credit score.

How to fix it

The last thing we want to do is put you off applying for credit that you need or have planned for, and make you afraid of the damage a “hard” search on your credit report could do to your credit score. After all, sometimes borrowing is necessary if you want to achieve your goals. How many people do you know who’ve bought a house without a mortgage?

The key words here are “planned for”. Applying for a new credit card that comes with a lower interest rate than your existing card is sensible and could save you money. Applying for six different credit cards that you don’t really need just to see which ones accept you… less so.

Keeping your applications for credit to a minimum will limit how much your credit score is affected by “hard” searches. One or less a year is ideal, but we know that sometimes you can’t always avoid needing credit more often.

If you’ve been applying for credit just to find out if you could get it or not, then there is a better way to find out without hurting your credit score. Many providers offer eligibility checkers nowadays, that allow you to find out how likely you are to be approved without you needing to put in a full, official application. You can even check your eligibility and compare different options in one go with some tools, like ours. These eligibility checkers use a different type of credit check, called a “soft” search, to scan your information and give you their results. “Soft” searches are recorded on your credit report, but aren’t visible to lenders you apply to, only you when you check your report. So you can check till your heart’s content without damaging your credit score, and without committing to take out a loan or credit card that you perhaps don’t need.

How does moving house affect your credit score?

Moving house is usually a great thing. New digs often means getting your first taste of freedom, branching out from a shared house to a place of your own, getting on the property ladder or stepping up a rung or two. All undeniably very important parts of adulting. But, moving house isn’t without its stresses, and the temporary upheaval can have an impact on your credit score.

What’s the damage?

Although we can’t stress enough that you should never not move solely because you’re worried about what it might do to your credit score, it taking a temporary hit is pretty much unavoidable.

This is because a new address can make it trickier to verify your identity for a little while after the move. When you move, you have to make your way round all your account providers to change your address, so there’s a period of a few weeks or months where some accounts are registered to your new place, and some to your old. You’ll also need to register to vote at your new address, a task that takes minutes to do yourself, but 6-8 weeks to be reflected in your credit report. While your new voter registration is processing, you’ll still appear on the electoral roll at your old address. Combined with your accounts all changing address, this can create quite a bit of confusion about which address you live at, and leave you vulnerable to both accidental mistakes and deliberate abuse of your details that have a knock on effect on your credit score. The dent won’t be huge, and it won’t be for long, but it will happen.

How to fix it

With this one time is the main healer, as you just have to wait while the admin catches up with you. But, you could limit the damage and speed up your healing time by planning ahead wherever you can. Start the ball rolling changing your details with your account providers as soon as you’ve moved into your new place, and get on the electoral roll straight away by registering online. If you set up a redirect service with Royal Mail to make sure that all your post is redirected to your new address, this can minimise the chances of it falling into the wrong hands.

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