You know that old saying, “It’s not what you know, it’s who you know?” Well, when it comes to your finances, that adage is especially true. Your credit score is like your financial report card. By maintaining a good credit score, you’re showing lenders that you’re a responsible borrower who is worth lending to. Plus, a good credit score can help you get lower interest rates on loans and mortgages, higher limits on credit cards, better insurance premiums, and even better job opportunities.
There is no denying the importance of having a good credit score. However, like most people, you probably think that paying your bills on time and keeping a low balance are the only things that count. But there are actually a lot of other things that can impact your score – some of which may surprise you. Here are 12+ unexpected things that can affect your credit score.
Spoiler alert: bad habits make the list! So if you’re looking to keep your credit rating in good shape, watch out for these sneaky culprits.
The Obvious Things That Affect Your Credit Score:
Defaulting on Your Loan Repayment
One of the quickest ways to tank your credit score is to fall behind on loan repayments. If you suspect you’ll miss a payment, be sure to reach out to your lender as soon as possible. They may be willing to work with you to create a repayment plan.
Late or Missed Rent Payments
If you’re having trouble making rent payments on time, be sure to speak with your landlord as soon as possible. They may be willing to work out a payment plan with you or even allow you to delay payments until your next paycheck arrives. Failing to pay rent can damage your credit score, so it’s important to take action when you realize there’s a problem.
The Unexpected Things That Affect Your Credit Score:
1. Having Too Many Credit Cards
Carrying too much debt can hurt your credit score, and having multiple maxed-out credit cards is one of the quickest ways to damage it.
So if you’re struggling to pay off your balances, consider consolidating them onto one low-interest card. This will help keep your credit utilization ratio low and improve your overall rating.
2. Canceling Your Credit Cards
While this may seem like a logical way to improve your credit score, canceling your credit cards can actually have the opposite effect. This is because it raises your utilization ratio – the percentage of available credit that you’re using at any given time. A high utilization ratio indicates that you’re struggling financially and could lead to a lowered score.
3. Co-signing Credit Applications
If you care about your credit score, don’t co-sign credit applications for friends and family with a lower credit score. Co-signing can do more harm than good, as it increases your own credit utilization and makes you liable for any debts the other person accrues.
4. Opening too Many Credit Cards
While having multiple credit cards can signify healthy financial habits, opening too many at once can have the opposite effect. New accounts will lower your average account age, which is bad news for your credit score. So unless you’re absolutely sure you can handle another card, it’s best to hold off on applying.
5. Not Checking Your Credit Report
It’s important to check your credit report regularly to ensure all the information listed is accurate. If you find an error on your report, contact the bureaus immediately to get it fixed. TransUnion, Equifax, and Experian compile separate reports used to determine your credit score.
6. Using Too Much of Your Available Credit
Your credit utilization ratio is how much of your total available credit you’re using at any given time. Experts recommend keeping it below 30%, and if you can get it down to 20% or lower, your score will benefit. Maxing out your cards will hurt your score, so try to keep your spending within reason.
7. Little Credit Diversity
If you only have one or two lines of credit, it can hurt your score because lenders want to see that you’re good at managing different types of accounts. You don’t necessarily need a ton of cards, but having a mix of revolving credit (like credit cards) and installment loans (like auto loans) shows that you can handle different types of debt responsibly.
8. Unpaid Fines
Do you have an unpaid parking ticket? Or an overdue library fine? These things might seem inconsequential, but if they’ve gone to collections, they will show up on your credit report and hurt your score. So if you have any unpaid bills, take care of them as soon as possible.
9. Renting a Car
Renting a car seems like a great way to spend your credit, right? Unfortunately, it’s not that simple.
While paying for your car rental with a credit card does help build your credit history, it can also result in a hard inquiry on your credit report. And too many hard inquiries will hurt your credit score.
So if you’re going to rent a car, be sure to use a debit card or cash, so you don’t end up hurting your credit score in the process.
10. Credit Limit Increase Requests
When you keep requesting your lenders to increase your credit limit, it can have the opposite effect and lower your score. That’s because it makes you look like you’re relying too much on credit, which is a red flag to lenders.
11. Paying Off Your Credit Cards Quickly
Paying your credit cards on time is a smart move to increase your credit score, but paying them off too quickly will only hurt your score. That’s because your credit utilization ratio, which is the amount of credit you’re using versus your credit limit, will go down.
And that can make it look like you’re not using your credit cards enough, which is not a good thing in the eyes of lenders. So if you’re looking to improve your credit score, don’t pay off your credit cards too quickly.
12. Living in the Past
If you’re still using an old email address from college or your first job, it could be hurting your credit score. That’s because some lenders use your email address to help verify your identity, so if they can’t find you at that address, it could make it harder for them to approve you for a loan.
Defaulting on your loans and making late payments are obvious ways to hurt your credit score. But several unexpected things can affect your credit score, so it’s important to be aware of them all. By being mindful of these things, you can work to maintain a good credit score and avoid any negative consequences.