- 1 surprising factors that could hurt your credit score
- 2 Are You Unknowingly Hurting Your Credit Score? вЂ“ 5 Things You Probably DidnвЂ™t Know Can Hurt Your Credit Score - PowerPoint PPT Presentation
- 3 things that hurt your credit score
- 4 6 Surprising Things That Wont Hurt Your Credit Score
- 5 8 Money Moves That Seem Harmless but Hurt Your Credit Score
surprising factors that could hurt your credit score
We are often advised to pay our mortgage and credit card bills on time, in order to maintain a good credit score. However, there are several other surprising factors that can hurt ones credit score. Let us take a look at these factors, in this Buzzle article.
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Are You Unknowingly Hurting Your Credit Score? вЂ“ 5 Things You Probably DidnвЂ™t Know Can Hurt Your Credit Score - PowerPoint PPT Presentation
http://www.carloanskingston.ca/ Not Using Your Credit Cards at All Has anyone ever told you that not using your credit card will make it look like you have a perfect score?
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Things that Can Hurt Your Credit Score You Probably DidnвЂ™t Know Can Hurt Your Credit Score
Not Using Your Credit Cards at All
Has anyone ever told you that not using your credit card will make it look like you have a perfect score? Well, if they did tell you this, they are wrong. Using your credit card on a frequent basis is actually a vital component to having a good credit score. As long as you are using them responsibly and not missing any payments there is no problem with using your credit cards. In fact, if you do not use it, having less credit information can actually weaken your score. Try using your credit card on a minor payment each month, a gym membership, satellite radio subscription, etc.
Ever tried going around and asking every attractive person you saw out on a date? No one is attracted to desperation and the same goes for banks. If they see you are opening too many accounts all of a sudden, then you appear desperate and the assumption is you likely have a cash flow problem. Every time you apply for credit, it can lower your credit score slightly and if you apply to a lot of places within a short period of time, this can have a much larger negative impact on your score.
things that hurt your credit score
1) Do you only have a credit card?
Did you know that if you only have one type of credit this can hurt your credit score? The types of credit you have makeup 10% of your overall credit score, as it demonstrates your ability to manage your debts as a whole.
One way to improve your credit would be to have a diversified range of credit sources. Therefore, as you look to boost your credit score, you may want to consider adding another type of loan to your credit history. For example, if you only have a credit card you could apply for a personal loan or a car loan.
2) Do you have an inactive credit card?
If your response to this question is yes, then it is likely that this is hurting your credit score. If your credit card is in good standing, yet you have not being using it for a long period of time, your credit issuer may opt to close this account due to the inactivity.
Some credit issuers may even close inactive accounts without notifying you first. This is especially bad because closing an account will decline your credit score. This is because 30% of your credit score is made up by how much you owe versus your available credit (utilization ratio). For example, if the credit card account closed had a credit limit of $5000, this is how much your available credit will drop which will increase your utilization ratio significantly.
One way to avoid this from happening is to start using your inactive credit card for a couple purchases every month and ensure that you are paying off the balance on time. That way your credit issuer cannot close the account because it will become active again.
3) Are you wanting to close a credit card account?
Not only can closing an old account affect your utilization ratio, which makes up for 30% of your credit score, it also affects your payment history – which makes up for 35% of your credit score.
Closing a credit card account will harm the length of your credit history since creditors want to know whether you will be able to pay them back. When you apply for new credit, creditors will look at your payment history and if you close an older account you will shorten the length of your history.
4) Do you plan on using your debit card to pay for a car rental?
As it turns out renting a car with a debit card can also be one of those rather surprising instances that can hurt your credit score. While most car rental companies will require that a credit card is used to make a deposit and payment, there may be others that will instead accept payments via a debit card.
If you decide to pay with a debit card, the rental company will be able to access your credit report with a hard inquiry, to ensure that you are a reliable renter. A hard inquiry can decrease your credit score by a few points, and they remain on your credit report for up to 2 years. It is important to avoid any unnecessary hard inquiries on your credit report, therefore, you should use your credit card to pay for a rental car so that no inquiry needs to be made.
If one of your ultimate goals is to improve your credit score this New Year, then being aware of these 4 surprising factors that can negatively affect your credit score can be vital to your success.
If you also in the market for a car loan this year, you will be comforted to know that even with bad credit you can access the vehicle financing you need. At Canada Drives, we have been helping Canadians since 2010 get the vehicles and car loans the need, regardless of their credit score. It’s simple, all you have to do is contact us or apply online today.
6 Surprising Things That Wont Hurt Your Credit Score
Losing your job and emptying your bank account won't directly affect your credit score. Neither will refusing to pay your rent. In fact, you could be in prison facing murder charges, but as long as your bills were paid on time, your credit score wouldn't suffer a bit.
Of course, it's always best to pay all your bills on time (and stay out of trouble with the law). Nevertheless, there are many things that you might think would affect your credit score but don't. For example, some quick thinking can prevent a late payment from lowering your score. Here's a closer look at six items that -- perhaps surprisingly -- won't harm your credit score:
1. Changes to your income or assets. "People get concerned that if they are laid off or get part-time work, that will affect their credit score, and it doesn't, as long as they continue to pay their bills," says Becky Walzak, president of RJB Walzak Consulting, which assists financial institutions with risk management, including assessing the creditworthiness of loan applicants. Of course, losing your job can affect your ability to qualify for new credit as financial institutions review income and employment as well as credit scores. But receiving unemployment or even public assistance will not affect your credit score.
2. Not paying your rent. Let's say you're withholding your rent because you're in a dispute with your landlord, or you've broken a lease. "That doesn't show up on your credit score unless your landlord takes you to court and a judgment is entered," says Kelley Long, certified public accountant and a member of the American Institute of CPAs' Financial Literacy Commission. However, since landlords typically ask for references from prospective tenants, it may affect your ability to rent another place in the future. In fact, legal trouble of any sort will not affect your credit score, as long as you continue to pay any debts you've incurred.
3. Late payment of taxes -- up to a point. "Paying your property taxes late will show up on your credit score if your county puts a lien on your home," Long says. Depending on your county's policies and practices, though, that will probably take a while. Likewise, problems with the Internal Revenue Service won't immediately show up on your credit score. "If you don't pay your taxes and then enter an agreement with the IRS, that goes on your report as another loan," she says.
4. Late payments to small vendors who don't report to the credit bureaus. In order for a debt to count toward your credit score, it needs to be reported to one of the big three credit bureaus: TransUnion, Experian or Equifax. "Small vendors typically don't report to credit bureaus, and some large companies don't either," Walzak says. Once a vendor sends your account to a collections agency, however, it typically will be reported to the credit bureaus, but since collections agencies only pay a portion of what they collect to their clients, most small vendors won't take this step in a hurry.
5. Anything your creditor agrees not to report. There's another reason creditors may not report your unpaid debt to a credit bureau: Because you asked them not to.
"Often, with mortgages, people work out modifications," Walzak says. "Then people think, 'I've got some debt relief and my car is shot,' so they go apply for a car loan and they're surprised to learn that their mortgage bank is reporting them delinquent. But it says in the mortgage agreement that if you pay anything less than the amount owed, you will be considered delinquent. So that's a question to ask when you're talking to a bank when reducing your debt or modifying your loan: 'Will you report me as delinquent?'"
People get concerned that if they are laid off or get part-time work, that will affect their credit score, and it doesn't, as long as they continue to pay their bills.
RJB Walzak Consulting
And, she says, you can ask a credit card company not to report you, depending on the circumstances. "If you accidentally don't send a payment, or send it late one time, you should call the credit card company, let them know, and ask them not to report it. A lot of times they won't even mark it as late. What really hurts is paying late over and over."
6. Not carrying a balance. "The question I get most often is, 'What balance do I need to carry on my credit card?'" Long says. "You don't have to carry a balance to show good credit." The confusion arises, she says, because many people understand that if they have a credit card but never use it, it won't improve their credit score. That's because a credit score is supposed to show your ability to repay debt. You can't demonstrate your ability to repay debt if you never have any to repay. But using a credit card and paying it off each month is a great way to do this.
On the other hand, you do risk hurting your credit score if you run up high credit card balances, even if you pay them in full each month -- a strategy many people adopt in order to capture credit card rewards. Since high utilization (using most or all of your available credit) negatively affects your score, it can have a negative impact if the credit card company happens to report to the credit card bureaus on a day when your balance is high.
If you still want to chase those rewards points, though, there are strategies for avoiding this effect. "I use American Express to pay for everything and then I pay it off," Walzak says. "The closing date is the 27th of the month, and they typically report to the credit bureaus on the first of the month. So I make sure to get my payment in between the 27th and the 30th."
Remember that you don't actually have to wait till the closing date to make a payment, says Anthony Sprauve, director of communications for MyFico.com. "I use a credit card to make most purchases so as to accumulate airline miles," he says. "But I make multiple payments throughout the month."
Whatever your approach, keep in mind that a credit score is only one piece of your financial picture, and that any prospective creditor will consider many other factors, Walzak says. Someone with a less-than-perfect credit score who has extenuating circumstances may still get credit, while someone with a good credit score but a bad financial picture may not.
"I've seen so many people with good credit scores and then I look at the amount of debt they have and I think: 'These people can't manage their money,'" she says.
8 Money Moves That Seem Harmless but Hurt Your Credit Score
If you know what hurts your credit score and you never miss a debt payment, you probably have a decent credit score. But if you want to push it even higher, you’ll need to watch out for common misconceptions about what actually lowers your credit score.
Even if you’re generally responsible with money management, you might inadvertently be doing things that lower your credit score. Here are some financial decisions that seem benign, but could damage your score.
Paying with cash or debit will always cost less than paying with credit, since you’ll avoid interest.
But as Liran Amrany, co-founder and CEO of personal finance app Debitize, points out, using debit could be a missed opportunity.
“You’re staying out of debt, which is great, but you’re also not taking advantage of the easiest and fastest (and free) way of building your credit score,” he says. “Even just putting one monthly bill on a credit card and setting it to autopay will go a long ways to improving your credit.”
Staying debt-free is a worthy goal, but avoiding debt altogether means delaying the chance to building credit. In fact, having no credit can be almost as bad as having poor credit.
“People perpetually delay dealing with credit until they think they’ve gotten to some point where they have more money or a better job,” says Lee Gimpel, co-creator of The Good Credit Game.
However, “building a good credit score comes from a responsible pattern of using credit — and a longer history of years is better than a short history of a few weeks or months,” he explains.
“You’re better off to get a credit card today and use it versus wait for years, until right before you want to buy that house or car,” Gimpel adds. Otherwise, you could get rejected for rentals or loans when you need them due to a lack of credit.
Any loans or credit cards that you use to responsibly borrow and repay debts can help build your credit. But the more types of accounts you have open, the richer your mix of credit, which can help boost your score.
“Having credit cards is good, but a lender is going to want to see that you can handle a mix: loans, credit cards, lines of credit, etc.,” says Josiah Nelson, a credit expert and author. In addition to getting a credit card, he suggests secured loans as a good way to build credit.
“The optimal number of accounts to have on your report is around 10 — mixed up between loans and cards,” Nelson says.
Just make sure you wait three to six months between opening new credit accounts and keep your credit utilization low.
Maybe there’s a card you haven’t used in a while, or you’ve finally paid down the balance and you’re anxious to just get the card out of your life. If you’re thinking of closing your account, you may want to reconsider.
Proceed carefully — closing a credit account can actually hurt your score, says Alex Gerard, CEO of credit card advisory service CardsMix. “It is quite counter-intuitive that this action can cause a dip in your credit score,” Gerard says.
“In the FICO model, the length of the credit history makes [up] 15 percent of your credit score,” Gerard points out. “That means that if you close an old credit line, both the average age of accounts and the oldest account age is taking a hit, decreasing your credit score.”
Another way to help your credit is to keep your credit card limits high, which helps you maintain a favorable credit utilization ratio.
When you close a credit card, for example, “you now have less total credit lines outstanding [and] it may increase your utilization, which makes up 30 percent of your FICO score (lower is better),” says Amrany. That’s yet another reason to leave a credit card open, to help keep limits high.
That’s also why it’s a mistake to decline your bank’s offer to increase to your credit limit. “Some consumers think it’s a smart move to just simply decline the offer altogether,” says Susan Chung, managing director for Smart Lawsuit Funding.
Resist the urge to increase spending when your credit limit increases, Chung warns. If you do this, accepting a bump can help improve your credit utilization.
Applying for and opening multiple new credit accounts within a short period is an action that many consumers might not be aware can hurt their credit.
“People may think that it is harmless to apply for as many cards as they can,” says Nelson.
However, a consumer who is seeking a lot of credit at once will make a lender worry that they are overextending their finances and borrowing more than they can afford. “As a credit analyst, if I see someone applied for 10 cards before ours, I’m most likely going to go ahead and deny their application,” Nelson says.
7. Shopping around for insurance and other services
Consumers looking for deals on car insurance and other services will often shop around and compare quotes. But here’s what lowers your credit score: Do it too often and it can look bad on your credit history.
“In order to provide you a finalized quote, insurance companies will run your credit,” points out Raymond Weiss, a CFP, licensed insurance agent, and blogger at The Ways To Wealth. “This is considered a hard inquiry.” Credit inquiries get recorded on your credit history, and too many can lower your credit score.
“What’s best is to choose one time a year and shop within a 30-day window,” Weiss suggest. “If you’re shopping within a 30-day window, the credit reporting agencies will consider this just one hard inquiry, no matter how many companies you get quotes from.”
Too many hard inquiries from lenders can be damaging to your credit. Because of this, says Nelson, some consumers think it could also damage their credit when they pull their own reports.
“This is a myth,” he says. Credit inquiries you originate are classified separately from those initiated by lenders or servicers. “In reality, you could pull 100 copies of your own credit report, and as long as a creditor didn’t initiate the inquiry, it will not be listed as an inquiry,” he explains.
Checking your annual credit report is an important part of maintaining a good credit history. You can catch mistakes and signs of identity theft early on, and reviewing your report might give you some ideas on how you could further improve your credit score.
Now that you know what hurts your credit score, you can take steps to change your habits and improve your score. Want to learn more? See exactly how your credit score is calculated.