That three-digit number rules your financial life! That is true in the present world, wherein every transaction you do is threaded to reflect in your credit report. You may have a general idea for what can the three-digit score that gets embedded on your credit report means- YES! It has numerous things that get added. The next time you apply for a new loan, remember that there are multiple things that get ignored secretly and hurt your credit score.
Contextually, many complex rules decided the number that you have as the final number! FICO’s traditional methods can calculate that well. That formula can be a bit confusing for you. Moreover, opting for covering those maxims can be a compelling idea. For instance, you just have to remember that missing the card payments can be something that would add to minus our credit score. However, you may not know that applying for a new credit card can be a bit hurting- not if you are doing that for once in a while, but multiple times in 12 months! That you did not know, right? Let us take another one. Well, if your mortgage lenders are accessing your credit report within a period of 30 days, while you are looking for the best interest rate. That whole process would count for only one credit check, a hard pull! Right?
Well, that list continues, some of the everyday things that you ignore in the process that adds for subtracting the numbers from your existing in your current credit score! It is a no-brainer that liens, bankruptcy, foreclosure, collections, defaulting on your loans, etc. all severely harm your credit score.
However, many people are unaware of the less-obvious credit faux pas that can secretly be hurting their credit score. Here is the compiled list of the things that can potentially opt for hurting your credit score without you knowing them. Scroll down to the bottom for understanding the various aspects of the things that could have been changed in a progressive approach for getting the scores right!
- Failing to pay what you owe on smaller debts. Yes, as absurd as it sounds, some of those smaller debts you may have accrued over time actually do add up and can damage your credit score. Many cities (particularly larger ones where many more infractions occur) hand over small fines like unpaid parking fines and unpaid parking tickets and even library fines to collections agencies in an effort to regain some of the millions of dollars they lose every year to these unpaid fines. Additionally, not giving your utilities provider(s) and/or or insurance provider(s) what they are owed can hurt your credit as well. While these payments are not typically reported to the national credit reporting agencies, many utilities and insurance providers will send delinquent payment amounts to a collections agency instead. These collections agencies then are very likely to report your delinquent payment amounts to the national credit reporting agencies and they may see it fit to put a huge dent in your credit score.
- Not using your credit cards the right way. Credit scores are based largely on, you guessed it, how you use (or abuse) your credit cards. The lower your debt-to-credit ratio (also known as your “credit utilization”) the better shape you are in. Therefore, maxing out your credit cards, or having a higher credit card balance than what your credit limit allows, can hike up your credit utilization but kill your credit score. Closing some of your older credit cards can be a huge mistake as well. Your credit history plays an important role in your credit score; therefore, closing some of your older cards makes it appear as though your credit history is shorter and therefore less reliable. Of course, while getting rid of some of your older cards is not a good idea; neither is applying for too many new cards within a short period of time. Doing this increases the amount of inquiries to your credit score which can hurt it in the long run.
- Having a lack of credit diversity. Your credit should be made up of different types of credit and if it is not, national credit reporting agencies will probably notice; that is, if they have not noticed already. Having a healthy mixture of credit cards and a variety of loans (a home mortgage loan and auto being the most common) shows credit reporting agencies that you are able to take on a diverse load of credit and handle it responsibly.
Noticed the hard inquiries?
When a lender pulls your credit report before proceeding for a special deal, whether you are eligible for getting the loan or not, the process that got termed here is a hard inquiry. For most of you reading this, hard inquiries cost around 5 points or less, but stay on your credit re[ort for two full years. But, contextually, it affects your credit score for a year.
Collections and charge offs
Before getting into the details of this fact, first, let us understand what a collection is?
A collection occurs when a creditor either hires an outside third party to collect the payment or sells your unpaid debt to the third party. While on the other hand, the “charge-offs” are referred to as the amount that the creditor removes as an unpaid debt from his papers. Typically, that is done when the unpaid debt reaches for reflecting some 180 days past the due. In this case, the more recent your collection account, the more it accounts for hurting your credit score. Contextually, a collection can reduce your credit score by at least 100 points. Also, adding more, the collection can reflect your credit report for as many as seven years.
If you declare your financial terms as being bankrupt, that will cause the most hurting scenario for your credit scores. It may cost you anywhere from 130 to 240 points, while the bankruptcy details can stay on your credit report for as many as ten full years! Well, that is quite a long time for you to struggle to get loans!
Student loan, or refinancing your home loan
Indeed, it is seen that refinancing your loan for various reasons can have a small impact on your credit score. If the credit report is the same as the one in which you have made changes, you may experience a slight hit in the numbers due to the new hard inquiries.
If you cancel a credit card!
If you are canceling a credit card, that will affect your credit utilization ratio. That would potentially lower the numbers of your credit score. Interestingly, this can also be a favorable term for the people who have never missed any credit balance payment and kept their card’s balance low. In the other case, the scenario is totally opposing. If you always had your credit card balance high and missed any of the payments, canceling a credit card can immensely hurt your credit scores.
Are you one of the authorized users on someone’s “bad” account?
If yes! You are secretly skipping the progressive numbers from your credit score. Let us understand that well. When you are added as an authorized user for someone else’s account, maybe of a credit card, you can effectively inherit the payment history of that first account. Again, this could give a financial boost if the latter has all his payments cleared in the required time frame. On the other hand, if the other person’s account falls under the category of bad account, the results will grip your account too.
Improving the score of your credit report can be one of the shortest steps for getting your financial terms back on the tracks. While you may opt for paying your bills at the correct time and not going for prolonged balances in your credit card, there are many that you can follow for a quick revamp. It is essential to understand that many things get added secretly to hurt your credit report in the long run. Your credit score is one of your most valuable financial assets for doing everything from applying for credit cards to applying for home and auto loans. Do not let prominent bad practices or the lesser-known bad practices discussed here to keep you from being able to get what you want.