- Many Brits are worried about how the cost-of-living crisis could impact their finances.
- Searches for “how to improve your credit score” have risen by 160% in last 30 days alone.
- Car finance experts at Zuto Car Finance have compiled six of the most common mistakes people make when it comes to getting credit.
Your credit score is one of the most important indicators of your financial health. So, with the cost-of-living crisis causing concern for many Brits, increasing numbers of people are looking at how they can develop good credit habits and build a good credit history. In fact, searches for “how to improve your credit score” have risen by 160% in the last 30 days alone.
As critical as that is, though, it is equally important to understand and avoid common credit mistakes that could stifle your progress and even damage your credit score in the long term.
Bad credit car finance experts at Zuto Car Finance have compiled a list of the most common credit mistakes Brits are making, from late payments to avoiding credit entirely. Having helped over 100,000 customers with a ‘poor’ credit score get approved for car finance in the last 12 months, and working closely with their large panel of lenders, Zuto know what it takes to avoid these common credit mistakes.
1. Making late payments
Making late payments can quickly and drastically affect your credit score. To avoid this happening, Zuto suggest setting up a monthly direct debit or a reminder on your phone to ensure you pay on time.
2. Maxing out your credit cards
Exceeding your credit limit can also hurt your credit score. One of the main factors in determining your credit score is your debt utilisation rate – how much you currently owe divided by your credit limit.
You should try to avoid carrying over a balance of more than 30% of your credit limit each month. For example, if your card has a £10,000 credit limit, the most you should charge in a month is £3,000. 1
3. Not shopping around
Another common credit mistake made by Brits is taking out credit without comparing the market to find the best interest rates possible. Even a small difference in interest rates can save you money in the long run.
4. Taking out unnecessary credit
In the current financial climate, taking out credit will be necessary for many people, but some Brits make the mistake of using their credit on discretionary purchases like holidays.
Doing this, though, could put a strain on your budget, making it more challenging to keep up with your monthly payments and negatively impacting your credit score. To avoid this, Zuto advises only using your credit when you really need it.
5. Avoiding credit entirely
Many Brits also make the mistake of thinking that not using credit at all shows how responsible they are with their finances. Zuto Car Finance explains how this can have the opposite effect as lenders rely on past payment history to dictate how reliable someone is to lend to. Thus, not having any credit history at all may mean that you become “credit invisible”, with lenders being unable to determine whether you are trustworthy or not.
6. Not reading the terms and conditions
Every credit agreement has fine print which most Brits choose to ignore. But this is a huge mistake that could end up costing you. While the terms and conditions of your credit agreement might seem boring, you need to know the details of the promotional interest rates or the limits on the points you can earn.3
Lucy Sherliker, Head of Customer at Zuto, commented on the findings:
“The cost-of-living crisis is showing no signs of slowing down, so we want to highlight the most common mistakes when it comes to applying for credit to ensure that you have the best experience possible.”
“By ensuring that you do not make too many applications in a short space of time or avoid credit entirely, you will be able to avoid the possible impact that these will have on your credit score.”
If you’re one of the many Brits whose credit scores have been affected by these common credit mistakes, but are still looking for car finance, then Zuto can help. Find out how you can get a loan despite having bad credit here: https://www.zuto.com/bad-credit-car-finance/