A credit score affects life in many ways – it affects the possibility of obtaining a credit card, mortgage and much more. Everyone talks about a credit score, but do you really know everything about it? What is a good credit score and what does it depend on? We have several factors in store that may surprise you! Let’s find out some unexpected things that hurt your credit score!
Payment history
The first point is quite obvious. Your payment history greatly affects your credit score. It accounts for about 35% of the credit rating. In fact, this is a record of whether you paid your bills on time.
Lenders report your payment activity (good or bad) to major credit bureaus. One delay is unlikely to hurt your rating, but multiple ones do affect it. And the later the delay is repaid, the worse.
This may be the absence of payments for:
- credit card accounts
- student loans
- mortgage loans
- car loans
Other types of payments, such as utility bills or phone bills, usually don’t affect your credit score if you pay late. But they can affect you if you do not pay for several months and the supplier sends your debt for collection.
Amount of debt
The amount of debt that you have to pay back to different accounts is 30% of the credit score. This debt, also called the credit utilization ratio, is calculated by comparing how much revolving credit was given to you (aka your credit limit) with how much you used.
For example, if you have one credit card with a balance of $200 and a credit limit of $1,000, the credit utilization rate is 20%. It is best to keep your total credit usage at 30% or less.
Credit age
Credit age affects 15% of your total score. The lender pays attention to two main things:
- the age of your oldest credit account
- the average age of your accounts (calculated by adding the age of each account and dividing by the number of accounts you have).
As you probably guessed, the older your accounts, the more it affects (with a plus sign) your ranking. For this reason, try not to close your old accounts unless there is a good reason to do so.
Combination of accounts
The credit mix affects 10% of your account. This refers to a good mix of revolving accounts and installment accounts. In other words, try to have a good mix of accounts such as credit cards and loans.
Loan inquiries
Credit requests occur when someone checks your credit and they can be either soft or hard. Soft requests do not affect your credit score. When a lender checks your creditworthiness to see if you are eligible for a loan, there will be a major investigation. This can lower your score a little, and complex inquiries account for about 10% of your credit score.
Credit requests occur when someone checks your credit and they can be either soft or hard. Soft requests do not affect your credit score. When a lender checks your creditworthiness to see if you are eligible for a loan, there will be a major investigation. This can lower your score a little, and complex inquiries account for about 10% of your credit score.
Looks pretty simple, right? Pay your car payment and credit card bill on time, keep your old credit accounts open, don’t add to your balance, and don’t apply for a bunch of loans, and your credit score will be fine. In fact, everything is a little more complicated. Here are some unexpected things that hurt your credit score:
Error message
Inaccurate negative information on your credit reports affects your rating. Issues can arise from data entry errors, identity theft, or other issues. Keep track of your credit report with services like ExtraCredit or Credit Report Card, or order free credit reports from AnnualCreditReport.
If you discover an error in one of your credit reports, contact the credit bureau for confirmation. If you have multiple errors, you will need to dispute each one separately with the error reporting bureau.
Parking tickets
Leave a parking ticket unpaid for a long time and the city will most likely send it back for a refund. Because fees are included in outstanding debts, they can show up on credit reports and harm your credit score.
Utility bills
Similarly, unpaid utility bills can negatively impact your credit score when debt is sold to an outside debt collector who can report it to credit bureaus.
Medical bills
Although medical bills are handled differently by credit bureaus, they can still affect your credit if not paid. As a general rule, credit bureaus do not report unpaid medical debt immediately once it becomes known. This gives you some time to work with your insurance company and service provider to pay your bills. But eventually, this data may appear in your report.
Overdue child support
Unpaid alimony is considered debt. This can be reported to the credit bureaus by the municipality or the agency responsible for collecting payments.
Loan repayment
If you pay off your car loan and it’s the only installment loan you have, your credit score will likely suffer as well. This is because you can reduce your loan portfolio.
Closing a credit card
If you close your credit card, you will lose part of your credit limit. This can lead to an increase in the credit utilization rate, i.e. a credit rating will decrease.
Non-payment of rent
Previously, timely rent payments did not affect the loan in any way. And in many cases it has remained unchanged. But the credit reporting industry tends to include rental data in certain versions of your credit reports. And the industry allows landlords to report payment data.
However, even if the lender or service provider does not review this data, a missed rent could result in the case being referred to debt collectors. A collection agency will certainly report your debt.
Old Gym Membership
Unpaid gym memberships can accumulate, so it’s important to cancel something you no longer use. Do not close or cancel the card you used to pay for your membership. Cancel the membership itself.
Bank overdrafts
Checking and savings account information is not included in traditional credit reports. Even so, if you opt for overdraft protection tied to a line of credit and don’t solve the overdraft problem, you could hurt your credit score.
Request to increase the credit limit
When you ask your issuer to change the terms associated with a credit card, they will likely check your credit to see if your current situation supports the change. This can lead to serious inquiries on your credit report.
However, in the case of an increase in the credit limit, the slight damage caused by the request can be easily mitigated by improving the credit utilization rate, so there are times when asking for an increase is worth it.
Opening a certificate of deposit
A certificate of deposit (CD) is a savings account. Well, unless opening it can affect your credit? Ironically, not all, but some financial institutions do carefully check your credit when you open a new CD.
Conclusion
As you can see, there are a lot of nuances and unexpected things that hurt your credit score. Knowing how to manage your credit score is a valuable skill that will help you gain trust and income. It will also make it an attractive client for lenders!
At LBC Mortgage we are ready to walk this path with you and help you understand the financing of your loan. Sign up for a consultation to take the first step to a high credit score.
