What hurts my credit score the most? It’s not these six things
There are a lot of myths about what a credit score is based on. This article aims to help clear up some of the misconceptions that certain life events and everyday occurrences impact your score.
Why is my credit score important?
According to Equifax, lenders combine your credit score with information in your credit report to assess your risk as a borrower. People with high credit scores will have an easy time securing financing in the form of loans because they are less of a risk to default. They’ll also receive better rates. People with lower scores will have a tougher time borrowing and will have to pay higher interest rates.
There are a ton of factors that go into considering your credit score; however, these six things don’t:
Having a lot of debt to begin with
What? I thought having a lot of debt was always a bad thing?!
It’s not. Having student loans, a mortgage or an auto loan and regularly making payments helps your credit score. If you have a credit card and use it responsibly (not maxing it out and making payments on time), it will also help your credit score. You hurt your score when you have a credit card, run it up, then only make the minimum payment on it (or don’t make any payments on it).
Bouncing checks and overdrawing your checking account
It’s never a good idea to bounce checks or overdraw your checking account with your debit card. This is why we have products like Courtesy Pay and overdraft lines of credit. However, information from your checking accounts does not show up in your credit report. If you overdraw or bounce a check, then pay back all of the fees, your credit will be in the clear.
If you overdraft your account and don’t pay it back, your credit union or bank could send it to a collection agency, which will hurt your credit score. After your overdrawn account is closed, your credit union or bank will report it to an agency like ChexSystems and you will have a hard time opening a checking account elsewhere.
Opposites attract. Sometimes that means opposite credit scores. Say you’re getting married and you have a 740 credit score and your spouse has a 620. You share a lot of things in marriage, but your credit score is not one of them. Your 740 stays the same after you tie the knot. You and your spouse will have individual credit scores forever.
If you apply for a joint credit card together, that application and the use of it will affect your individual credit score, as well as your spouse’s. If you use the credit card responsibly, both of your scores will go up. If you use it irresponsibly, expect both of your scores to drop.
Generating too little income
You can make $100,000 a year or you can make $10,000 a year and it doesn’t affect your credit score one bit. Some people who make a lot of money can have terrible credit scores, while people who make little but use credit wisely can have great scores.
Your credit score is primarily based on these five things:
- Payment history
- How much of your available credit is in use
- Credit age/history
- Account mix
- Credit inquires
Racking up library and traffic fines
Not too long ago, forgetting to return something to the library or not paying a traffic ticket could lead you to a collections agency. The 2015 National Consumer Assistance Plan changed this. As of June 15, 2016, collection agencies can no longer report debts not arising from a contract or agreement to pay. When traffic tickets, parking tickets and library fines used to go to collections, it could cost people 100 points on a credit score. Also, as of April 2018, tax liens don’t count against your credit score, according to Leslie H. Tayne, Esq., of Tayne Law Group, PC.
While these things won’t affect your credit score anymore, you still need to return your library books, DVDs and CDs. It’s common courtesy.
Checking your credit too often
If you use a free service to check your credit score, you won’t hurt it. These are known as “soft inquiries” and will not count against you. But, if you apply for a bunch of different credit cards at once and a lender or credit card company looks up your score (also known as a “hard inquiry”), it will hurt. A hard inquiry can cost you up to five points on your FICO score.
Which credit score app is the best? This WiseBread article offers a list of seven apps and websites you can use to check your credit score. Remember, in addition to checking your score, you can also check your credit report for free by visiting AnnualCreditReport.com. This is the only source for your free credit reports as authorized by federal law.
Here are three ways to make sure your credit score stays high
- Pay your bills on time: This one is self-explanatory. The due dates for your bills aren’t suggestions.
- Reduce your account balances: If you have a credit card with a $2,000 limit and have a credit balance of $1,999, your credit score will suffer. If you can’t pay your statement balance in full, aim to keep your utilization under 30 percent.
- Only apply for credit when you need it: You’re going to get a lot of credit card offers in the mail. Don’t take each company up on this. Opening too many new lines of credit will hurt your score.