What happens to your credit score as you age?
The older you grow, the longer your credit history will get, depending on when you took out your first form of credit. Did you know a mobile phone contract is a type of credit? So if you took one out at university, for example, even if you didn’t have a credit card, your credit history will have started building up.
Did you also know your student loan doesn’t count towards your credit report and score?
A limited history could mean a lower credit score, since there is not enough evidence of good borrowing. However, a long credit history doesn’t always necessarily mean a good credit score. This is because a high credit score is determined by a history of credit repayments made in full and on time, among other things. So, much like if you were to keep up a good diet and exercise regime you’d be more likely to be in good health as you get older, your credit history needs to be maintained in order to achieve a healthy credit score.
At certain points in your life your credit score may drop. One reason for this might be when you take out new forms of credit. Taking on a mortgage or loan could see your score drop, because of the additional debt and new credit inquiry recorded on your file. Your first mortgage, a car loan, a loan for your wedding, a joint credit card, a remortgage; there are numerous times when you might need to borrow money throughout your life and this might impact your score.
Whether you get married or not, you may choose to join your finances with your partner and open a joint account or a joint mortgage. Being financially linked to someone means their score and credit report will impact yours and you can see your credit score fluctuate depending on their financial behaviours.
How to maintain a high score
- Keep credit card balances low
The higher the balances on your credit cards, the more it can negatively affect your credit score, so you should aim to keep your balance relatively low in proportion to your credit limit. Your use of credit should be under 25% of your total credit limit. For example, if your credit limit is £1,200, then you should aim to only spend no more than £300 on it. Going over this, even if you plan to pay the balance off in full, can affect your credit score.
. - Pay your bills on time
One of the easiest ways to maintain a good credit score and prevent it from dropping is to keep on top of your bills. This means paying them on time and not missing payment deadlines. As you get older you may have more bills to pay, so to avoid losing track set up direct debits. The payments will be made automatically from your account so there’s no risk or forgetting and being hit with missed or late-payment penalties. This also applies to the payments on short term loans, should you ever have an emergency and need money quickly to help you through a situation.
. - Check your credit report regularly
A mistake that many people make is only checking their credit report when they need to apply for a mortgage, loan or other form of credit, which means it could go unchecked for months or even years. Checking your report can help you spot errors on your file that could affect your score. You can also pick up early signs of identity theft or fraud by examining your accounts and other information held on your report. However, unless you’re checking your credit report once a month or so, you won’t know and your score could be falling in the background without your knowledge. Get mistakes on your credit report fixed as soon as you spot them by informing the credit reference agency.
. - Keep old accounts
Closing down old accounts will shorten your credit history on your file and could subsequently cause your credit score to drop. Credit reporting agencies will only keep payment history on closed accounts for six years, after this it will be removed from your credit report. There are times when closing accounts can help your credit score, because it reduces the amount of available credit you have. If you are to consider this, you should still try and ensure that your total balances compared to limits, remains around the 25% mark mentioned above. However, as a rule of thumb, aim to keep accounts with a long history of good repayments.
. - Apply for credit in moderation
Making too many new credit applications in one go can make lenders perceive you as too risky and negatively impact your credit score. Whenever you make an application for new credit, the lenders search on your file is recorded and leaves a footprint on your credit history. Too many credit applications can imply that you’ve failed to get the credit you want.
Whether you’re a student or retired, your credit score will only be as good as your financial behaviour. It only takes a few basic habits to ensure your credit score doesn’t drop as you get older and stays as high as possible throughout your life.
Noddle will provide you the visibility of your credit score and following some of the simple tips above, over time, could allow you to improve your credit score.