When it comes to your credit, you probably already know that it can be as finicky as a three year old at dinnertime. Many people just assume their credit is either good or bad without actually checking their credit reports. However, certain habits and seemingly mundane transactions could be playing a role in determining your credit score. These five things could be bringing down that magic number without you even knowing it.
Your old accounts.
The age of the accounts on your credit report plays a vital role in determining your credit score. That loan you took out 15 or 20 years ago might not look like it’s doing anything to your score, but while the entry just sits there quietly, it’s secretly boosting it.
A lengthy credit report showing accounts over a long period of time looks favorable to future lenders and creditors, so those old and seemingly stale entries actually play a big part in keeping your credit score healthy and high.
The credit cards you’re not using.
Much like the old accounts mentioned above, credit cards you don’t use can definitely affect your credit score. Many people open up multiple credit accounts at retailers in an attempt to take advantage of special sales and discounts and then forget they have the cards. If a card goes too long without being used, the creditor will sometimes reduce or even zero out the credit line– which can directly affect the ratio of credit in use to available credit.
In general, it’s a wise idea to use cards at least once per year. This will usually keep the creditor from reducing or eliminating the credit line, or worse, closing the account all together. The more credit you have available to you as a consumer that you don’t use (but could use if you wanted to), the better it looks to potential lenders and creditors. Closed accounts and accounts with low or no credit lines available can increase your credit usage and lower your score.
Collection accounts can creep up on you if you’re not actively checking your credit account. Even people who routinely pay bills on time can wind up with collection accounts for miscellaneous debts they may not even know they had if they’re not careful.
Fees charged from prior landlords or rental companies, damages sustained to rental vehicles, small or sundry medical bills, unpaid magazine subscriptions, fees or past due balances from utility companies, and other miscellaneous entries can wreak havoc on your credit score even if the balances are small.
This is another reason why checking your credit reports periodically is so important. If you find “mystery” collections on your report, either contact the collection agency to pay off the debt (with the caveat that they remove the entry from your credit report–get that in writing if possible) or dispute the collection entry with the credit reporting agency if you feel it has been recorded in error.
Not having credit cards.
Some people assume they have great credit because they do not have credit cards. They may have a car loan or student loans on their credit, but they assume that not having credit cards is a good move to keep their credit reports looking pristine. Unfortunately, that’s just not true.
Revolving credit lines are an important part of a healthy credit report. This does not mean you need to carry revolving credit card balances from month to month, but it does mean that responsibly using credit cards even just periodically and paying them off will help to build and maintain good credit. Not having credit cards can lead potential lenders and creditors to determine that you have insufficient credit history even if you credit score looks good. Responsible revolving credit account use is critical for a healthy credit report.
Applying for credit cards.
Applying for credit cards– even retail credit cards– in succession can bring your credit score down and keep it down. A hard credit inquiry, or application for any type of credit account, doesn’t hurt your credit report when done in moderation, but having several inquiries performed in a short period of time–especially inquiries for credit cards– can take a toll on your credit report.
When it comes to mortgages and car loans, laws protect consumers from having their credit reports negatively affected by multiple inquiries (after all, it’s best to shop around for the best lender when it comes to large purchases). However, applying for several credit cards even over the course of a year can raise red flags for lenders as it may indicate financial volatility. Try to limit credit card inquiries to one every six months, if possible.