How Can My Spending Habits Affect My Credit Rating?

by / Friday, 19 January 2018 / Published in Credit Rating

Your spending habits can have a huge influence on your credit rating. So, whether you are spending money out of your current account or using your credit card, you need to consider how it is going to affect your ability to get a mortgage or a personal loan in the future. It can affect your credit rating to such extent that you may be turned down for loans and credit cards and even if your application is accepted it will have an influence on the terms that you are offered. Even the slightest difference in the interest rate can be significant and can be excessive when calculated over the loan term. Fortunately, by being careful about your spending habits you can easily avoid all these and obtain the best interest rates in the future.

Let’s check out the different spending habits that should be managed so that they do not affect your credit rating. They are-

Making Late Payments

Making one single late payment on a credit card or a personal loan can be negligible. But you will be charged with late payment fee and you will be able to get yourself back on track and up to date once you have started making consistent on-time payments for a few months. So, one single late payment will never cause you any severe harm. However, you should remember that making repeated late payments will show up as default on your credit file after a period of time. This will have a significant effect on your credit score and will have indirect influence on your ability to get approval for credit card and loans. For example, making consistent late payments on your credit card will compel the credit card issuer to reduce the limit of your card. Even when you are irregular with your utility bill payments, it will affect your credit score.

So, when you plan your monthly budget make sure you set up all your regular payments so that you never miss them. Consider direct debits to remove any possibility of forgetting to make on time payments. There are various resources online that will help you with your budget planning. You should remember that late payment can end you up with defaults and bankruptcies on your credit file. This would make it absolutely impossible for you to obtain credit hereafter.

Maxing Out Your Credit Accounts

When you are out shopping, you are likely to use your credit card to pay without thinking about how you are going to repay it. At times, you may end up buying things that you really do not need with the credit card. If you keep using your credit card and repay the complete balance every month then it is absolutely fine. But if you have maxed out the credit card limit and you are making the minimum repayment only every month, it could have a huge damaging effect on the credit score. Your low credit score will make the lenders wary of giving you more credit. So, whenever you are out shopping think before you buy anything non-essential using your credit card.

Applying For More Credit

Applying for new credit, be it a personal loan or a new credit card can affect your credit status in various ways. When you apply for a credit card and it gets declined, you may make repeated search and this will lower your credit score. The more credit accounts you have, higher the chances of getting into debts will be. You can also damage your credit score if you max out and start making only the minimum repayments.

Try Developing Spending Habits That Affects Your Credit Rating In A Positive Way

Try to make all the repayments on time. Make sure you do not have large balances on your credit accounts and never apply for a new credit card when you do not actually need it. Managing your spending habits correctly will definitely affect your credit rating in a positive way and ensure that you get accepted for different types of credit in the future, for such as personal loans and mortgage. Besides, you will also be offered the best interest rates available.