Nine ways to sabotage your own credit score
I’m working hard to improve my credit score these days. In the past I was a bit of a bad boy when it came to paying bills – so I’ve been looking into what will kill your credit score, and fast. Real fast.
But just so you know: a good credit score is 500 or more on the scale of 0 to 1,000. Most of us Kiwis sit between 400 to 600. Over 800 is skuxx as. Anything less than 400 is going to make your financial life a whole lot harder. The lower your score the harder it is to borrow money, open a utilities account or even get a job, and you don’t want to be one of those people.
So with that, here are nine ways to kill your credit score.
Naughty you 1: Live in the wrong suburb
We know you can’t help this – unless you move. It seems unfair, but statistically the people in some suburbs or towns or areas are more likely to be bad payers than their peers elsewhere. Credit providers base their lending criteria on risk and where you live is one factor. Moving house too often also affects your credit score. That’s because people who move home are more likely to leave bills behind.
Potential mark down: 20-100 points
Naughty you 2: Apply for too much credit
It is okay to shop around and ask prices. What does affect your score is the number of times you apply for credit including opening utilities accounts. The more there are, the lower your score. A number of applications in very short succession can say a lot about you. A worst case scenario is that there’s fraud involved. It might also say that you’re a bit desperate or your credit is so bad that these companies are turning down your applications. This is a lot of credit activity in a short amount of time.
Potential mark down: up to 150 points.
Naughty you 3: Take out too many small value loans
If you’re always borrowing small amounts you’re going to look like someone who is bad with money.
Potential mark down: 120 points.
Naughty you 4: Paying late
Falling behind in your regular payments soon starts to affect your credit score. Some people pay as late as they can every time. The reality is with banks now reporting positive behaviour such as paying on time, late payers are going to stand out. You may earn a few cents extra interest by delaying bill payments. But it’s just not worth it if it’s wrecking your credit score. It’s also less stressful to pay on time. Trust me. When I started paying everything by direct debit my life got so much easier.
Potential mark down: 60 points
Naughty you 5: Get defaults
In the world of credit scores, defaulting is pretty up there as one of the biggest “no nos”. Defaults can be loaded in by all sorts of organisations ranging from utility companies, banks, the Inland Revenue Department, your landlord, courts or councils for unpaid fines, or even a breached gym membership. The more defaults on your credit record the worse your score.
Potential mark down: 60 points per default.
Naughty you 6: Be too young
There’s not much you can do about this. But younger people are greater credit risks and are more likely to pay late, go into default or commit fraud. Your credit score will naturally improve as you age.
Potential mark down: 20 points.
Naughty you 7: Not paying items in dispute
Even if you’re in dispute with a creditor you need to keep paying until it’s solved.
Potential mark down: 60 points.
Naughty you 8: Going insolvent (bankrupt or No Asset Procedure)
Oh dear. If you’ve got a bankruptcy on the books you’re the lowest of the low as far as credit scores go. The No Asset Procedure is also pretty bad. The good thing is that “insolvency” which covers both can’t haunt you forever. For bankruptcy you get a clean slate after seven years and five years for NAP. When you can get credit again, make sure you pay your bills on time every time to resurrect your credit score.
Potential mark down: 400 points.
Naughty you 9: Having no credit history
You might think you’re goody two shoes for never having taken credit out. The reality is that you’ve not shown that you’re good at making repayments. If you’ve been paying your electricity bill on time for 12 months your score could go up by around 80-100 points.
We know things can go wrong in people’s lives. When it comes to credit scores you can turn it around. But that means taking positive action to change your ways. If you think you can do it, you will. We have faith in you.
