What can cause your credit rating to drop and how can I maintain good financial habits?
10 June 2023
By Joy Pearson
Your credit rating is a crucial factor that determines your ability to secure loans, credit cards, and other financial products. It's a score that represents your creditworthiness, and it's caused by lenders to assess the risk of lending to you. A high credit rating means that you are a low-risk borrower, while a low credit rating means that you are a high-risk borrower. In today's post, we will be discussing what factors can cause your credit rating to drop and what you can do to prevent it.
One factor that can cause your credit rating to drop is late or missed payments and is probably one of the most significant factors. When you miss a payment after the due date, it can negatively impact your credit score, as it shows that you may be struggling to manage your finances. The same can be said for high credit card balances. If you are using a significant percentage of your available credit, this suggests to lenders that you are relying on credit and may be struggling to afford your debt.
Defaults and bankruptcy and other insolvencies can too have an impact on your credit rating, These negative marks can remain on your credit report for several years, making it difficult to access credit in the future. On the other hand, applying for too much credit can too negatively impact your credit rating. Each time you apply, it leaves a record on your credit report, and too many applications in a short period of time can suggest that you are financially unstable.
What a lot of people don't know is that inaccurate information on your credit report can also cause your credit rating to drop, so it's essential to check your credit report regularly to ensure that all the information is correct and accurately reflects your financial situation.
Lastly, joint accounts with a bad history affect your credit rating due to the fact that lenders can view the joint account as a shared responsibility, and any missed payments or defaults by the other person can negatively affect your credit rating,
As we can see, there are several factors that can cause your credit rating to drop, ranging from late payments, to joint accounts with someone with a bad credit history. It's essential to maintain good financial habits, such as paying bills on time, managing your credit card balances and applying for credit only when necessary. By doing so, you can improve your credit rating and increase your chances of being approved for loans and credit cards in the future.