Credit scores are determined using complex formulas that draw information from every corner of your financial life. These formulas vary among the three major credit reporting agencies, but the general factors that affect the score are pretty much the same. You may be hurting your credit score without understanding why if you have one or more of the following common habits that negatively impact your credit score and how it's tallied.
Department Store Credit Cards
Resist the urge to get the credit card offered by your favorite department store. The discount you will get for applying at the register is most likely not worth the potential it has to negatively affect your credit rating. Every time you apply for a credit card, whether it is a major card or one from a department store, you initiate a "hard" check of your credit history. The "hard" check has an immediately negative impact on your credit rating, no matter the outcome of the credit application. The department store cards also have higher interest rates than major credit card companies. Avoid hurting your credit rating in this way by never making impulsive decisions that involve your credit.
Types of Credit
There are several different kinds of credit and how many kinds of credit you have in your history does have an impact on your overall credit rating. A mixture of different kinds of credit, all with at least moderately good ages and account health, will improve your credit over time. However, if you have only one or two types of credit on your report, your score will be lower. For this reason, you should make sure loan and credit card accounts you have report activity to at least one of the three major credit reporting agencies.
Bills in Collection
Any bill that goes into collection or is paid late will hurt your credit rating. Whether you let one or two monthly credit card payments slide or let an expensive medical bill get referred to a collections agency, your credit rating will drop. Debt does fall off of your credit report eventually, but large bills that go unpaid can make getting loan approval or new credit card accounts more difficult for several years. Try to make payment arrangements for large bills as soon as possible and be sure you remember to pay all monthly bills on time.
An awareness of how your many financial decisions affect your credit rating will help you avoid common practices that hurt your score. Good spending and payment habits will help you improve or build a strong credit history.
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