There are many factors that influence your credit score, and it is always changing. You probably know how important it is to make your bill, credit card, and loan payments on time. There are many other ways you can help your score improve, or remain high. But there is one habit you may not realize is hampering your efforts:
Joe Smithies at PennyPlan explains, “If you consistently use a high percentage of your credit limit, even if you pay off the balance in full each month, it can signal to lenders that you may be relying too much on credit.”
This habit can cause your credit score to drop. “Ideally, you want to keep your credit utilization below 30 percent…” he advises.
Many people assume paying their balance off in full each month protects their credit score, but Smithies warns how much of the limit you use before the statement date matters.
“Credit card companies report your balance to credit reference agencies on a certain day each month. If your balance is high on that day, it can affect your score even if you clear it later.”
He suggests monitoring your spending and keeping your balance low before your statement date. “If possible, make payments throughout the month to keep the reported balance down. This simple step can help improve your credit score over time.”
Having a poor credit score can make it much harder and more expensive to borrow money. It could lead to higher interest rates on mortgages, loans and credit cards, or even result in being declined credit altogether.
It may also affect your ability to rent a home, get a mobile phone contract or even buy insurance at a reasonable price.
Mr. Smithies warns: “Maintaining a good credit score is crucial for financial flexibility and access to the best deals… Being mindful of your credit utilization is an easy way to protect and boost your credit rating without making major changes to your financial habits.”
Alastair Douglas, CEO at TotallyMoney shares five practical steps to protect your credit rating and secure better loan deals:
Check your credit report regularly (and fix any mistakes)
“Only one in four people have checked their credit report in the past four years, and 32 percent of those who did found errors. These mistakes could be costing you thousands in higher interest rates. Check your report at least every six months using a free service - never pay for access to your own data. Look for incorrect addresses, closed accounts still showing as open, or payments marked as late when they weren't.”
Understand what lenders really see
“Before applying for any loan, use open banking tools to get a real-time view of your finances. Lenders increasingly use this data to assess affordability, looking at your actual income and spending patterns rather than just historical credit data. Connect your bank account to a personal finance app to see how your spending on gambling, buy-now-pay-later, or high-risk categories might be affecting your eligibility.”
Shop around smartly (but protect your credit file)
“Don't just accept the first offer - different lenders have different criteria and risk appetites. Use comparison sites that show your eligibility before applying, and look for guaranteed, pre-approved offers where possible. Multiple hard credit searches can damage your score, so avoid making several applications in quick succession. If you're rejected, wait at least three months before applying elsewhere.”
Consider the full picture, not just the APR
“Representative rates mean almost half of customers get a different deal than advertised. Look at the total amount you'll repay, not just the monthly payment or headline rate. Sometimes a personal loan isn't the best option – a 0% balance transfer credit card might be cheaper for debt consolidation, while a secured loan could offer better rates if you own property.”
Only borrow what you can afford and have a plan
“Lenders are increasingly sophisticated at spotting financial stress. Before applying, create a realistic budget that accounts for all your expenses, not just the new loan payment. Have a clear plan for what you'll use the money for and how you'll repay it. If you're consolidating debts, don't be tempted to run up new balances on cleared credit cards – cut them up or lock them away.”
For a BONUS TIP, read the full article here.
It may feel like a lot of work to not only keep your credit rating up, but to also stay on top of everything on your report. But the rewards are absolutely worth it. A good credit score can help you in so many ways. Make sure you are taking all the steps you can to reach your goals and maintain the score you want to have.