Common credit card habit could be harming your credit score, expert warns

Countless Brits depend on credit cards for their daily expenses, but one habit might be harming their credit score without them even realising it. Money expert Joe Smithies at PennyPlan has now revealed everything you need to understand about your utilisation rate - the proportion of available credit you're using at any given time, according to theDaily Record.

Mr Smithies said: "If you consistently use a high percentage of your credit limit, even if you pay off the balance in full each month, it can signal to lenders that you may be relying too much on credit."

Mr Smithies went on to reveal that this behaviour can damage your credit rating every single month. He continued: "Ideally, you want to keep your credit utilisation below 30 per cent. For example, if your credit card limit is £1,000, try not to use more than £300 at a time."

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Whilst numerous people assume that clearing their balance monthly safeguards their credit rating, the expert cautioned that the amount of your limit you're using before the statement date remains crucial.

Mr Smithies said: "Credit card companies report your balance to credit reference agencies on a certain day each month. If your balance is high on that day, it can affect your score even if you clear it later."

Given this information, Mr Smithies recommends monitoring your spending ahead of your statement date. "If possible, make payments throughout the month to keep the reported balance down," he added.

"This simple step can help improve your credit score over time."

Why does poor credit matter?

A poor credit rating can make borrowing money significantly harder and more expensive. It could mean facing steeper interest rates on mortgages, loans and credit cards, or having credit applications turned down altogether.

In certain circumstances, it might also affect your chances of securing a rental property, getting a mobile phone contract or even buying insurance at a reasonable price. Mr Smithies warned: "Maintaining a good credit score is crucial for financial flexibility and access to the best deals.

"...Being mindful of your credit utilisation is an easy way to protect and boost your credit rating without making major changes to your financial habits."

Fresh research from Totally Money reveals that poor credit can land borrowers with an additional £6,678 on a £5,000 loan. The study also discovered that 2.6 million households are resorting to loan sharks and payday lenders because of the continuing effect of the higher cost of living since the pandemic.

Yet 31 per cent of loan applications are being turned down because of poor credit ratings.

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