If you’ve bought a car or a house you understand the value of a good credit score. A credit score is the calculation lenders use to determine creditworthiness. They want to know how much of a risk it will be to lend you money. Your credit score is a measurement of your financial activities and there are things you won’t believe hurt your credit score.
- Closing a credit card account. You may think closing a credit card account would be positive on your credit score but it will never improve your score. Lenders are looking for you to be using less than 30% of your total available credit. If closing an account causes you to be above that number, you will be hurting your score. Closing an account will also effectively reduce the length of your open credit history. Your score likes to see account activity
- Failing to pay parking tickets. You might think you’ve avoided the system when you ignore parking tickets but most cities are now sending unpaid tickets to collections. That means you will likely see them on your credit report as collection accounts.
- Not paying rent. In many cases your positive rent payment history does not go on your credit report, but avoiding or missing payments may end up impacting your credit score negatively. Apartments almost always send unpaid debt to collection agencies, which will report to your credit. These collectors are also very aggressive in filing lawsuits because they tend to have a lot of good documentation. , The bureaus are starting to get apartments to report positive payment history, but even if yours doesn’t, ask your current landlord to provide a letter of reference to show you’re paying rent especially if you’ve lived in the same place a year or longer. It won’t impact your credit score directly but could help you get approved for a loan.
- Applying for new credit. It seems counterintuitive but applying for credit could actually hurt your score because it shows as a hard inquiry. Too many hard inquiries can have a negative impact; creditors will wonder why you’re applying for so much credit and may deny your request. A couple of inquiries might only drop your score a few points, but too many in a six month period could have a significant impact.
- Applying for store credit. You’ve probably see the ads to apply for credit at a furniture store and receive no interest for a period of time. Avoid this type of credit as it appears as a hard inquiry and is viewed as last resort credit. It will also lower the “average age of all your credit card accounts”, which can drop your score. If you can get a bank credit card (MC/Visa), do that instead, but only if you don’t already have many open revolving (credit card) accounts – three revolving accounts is a good number.
If you’re thinking about making a big purchase in the next couple of years, it’s important to know which financial choices could negatively impact your credit score. If you have questions or would like to review your credit report, make an appointment with Go Clean Credit today.