Two Factors That Could Damage Your Credit History
Introduction
Establishing a good credit history can be tough, especially for young adults. A lack of knowledge or understanding of how credit works can mean that you get off on the wrong foot, and damage your credit history.
We’ve compiled a number of factors that could damage your credit record and outlined ways in which you can avoid them:
Making Multiple Applications
When you are looking to establish credit there are numerous routes you can take. Some choose to take out bad credit loans however credit cards are often the first port of call due to their flexible repayment terms and the sheer range of products on offer. There is a credit card available to suit almost any financial situation whether it’s simply a low rate card you are looking for, or a foreign usage card; there are hundreds of different options available.
For a young adult with very little credit history, a specialist credit builder credit card is probably the most suitable option. You will notice that these cards will come with relatively high APRs, however this simply compensates for the risk of lending to those with very little repayment history. The idea is that you manage these cards well and they’ll help to boost your credit score, however with so many different options available, it can be tough to choose the best one which is why many simply make multiple applications.
Making multiple applications is not recommended. This is because each time you make one; you are agreeing to let the provider carry out a credit search on you. Having multiple credit searches on your credit file within a short space of time may indicate that you are struggling financially and are desperate for credit – which could ultimately affect your chances of being approved for credit in the future.
Having too Much Available Credit
While your financial situation may show that your handling your credit commitments well, your credit file may tell another story. The fact of the matter is; you may only have one active credit card which you are dealing with immaculately, you may have two other cards left in the top drawer each with large credit limits available. Although these cards may not be active, a lender will view them as ‘available credit’ meaning that if you were ever to have a financial crisis you could simply turn to these cards and ‘max them out’. Also, if a lender sees that you already have two credit cards available to use, why would they then add to that by offering you another card?
So, rather than simply chucking unused cards in the top drawer, cancel them to ensure they’re no longer seen as available credit.
Conclusion
These are just two factors that could affect your chances of being approved for credit in the future. In order to ensure that you never fall into the trap of damaging your credit history, never rush into applying for credit. Ensure that you check your credit file by taking advantage of free trials offered by the various credit reference agencies. This should give you some knowledge of your current credit rating and give you an idea of whether you’ll be approved if and when you apply for credit in the future.
