Little-known things that hurt your credit score
May 28th 2008 3:10PM
Updated May 28th 2008 3:13PM
We don't mean to get too personal, but what's your score? We're talking about your credit score, of course. A few years back, no one knew their credit score. Today, people brag (or complain) about it at cocktail parties and compare scores over the water cooler at work!
That's because knowing your credit score can have a huge impact on your wallet. Being a 640 versus a 690 means paying 12.2 percent versus 9.5 percent on your next loan, and that adds up to thousands of dollars in extra interest!
So, you already know that the higher your score the better. And you probably know the basics for keeping your score high-pay your bills on time, don't carry too much credit card debt, etc.. But you might be surprised at some little known factors that can do some serious damage to your score.
In a world where one delinquent payment-just one-can drop your score 100 points, let's look at eight credit score "no-no's" that pack a real wallop:
2. Collections, liens and judgments have a big negative impact on your score, no matter how small the amount. And they hurt for a long time! Even if you pay off a collection, it stays on your report for seven long years-tax liens for 15! Don't let that happen. Your payment history counts for a whopping 35 percent of your score, so take care of any outstanding fines, and work with creditors to avoid your debt being turned over to collections in the first place.
3. Being a responsible consumer. It's crazy, we know, but in credit score land, you are punished for being responsible with your money. Your credit score will actually be hurt if you pay off your credit card balance in full each month or simply don't charge things on credit.
4. Shopping for a loan. If you are shopping for the best rate on a mortgage or car loan, be sure to do all your comparison shopping in a short period of time. Every time someone looks at your credit rating at your request, it counts as an "inquiry" and stays on your report for two years. Too many inquiries lowers your score because it looks like you are about to open lots of new lines of credit. But if you complete your comparison shopping in a 14 day period, it will count as just one inquiry.
5. Unpaid or late utility bills. It used to be that utility companies only reported seriously delinquent accounts to the credit bureaus, but many are now reporting late or missed payments just like lenders do. Plus, utilities-including your electric, gas or phone company-are much quicker to turn late accounts over to collections agencies. If you are behind or can't pay, contact your utility and work out a plan before that happens.
6. Consolidating your debt onto a low interest rate credit card. If you are carrying balances on several cards and get an offer for a low interest rate card, you might be tempted to transfer all of those balances to that new card. You save money, you lower your interest rate...and you sucker punch your credit score! The percentage of available credit used is a key factor in your score (how much you owe accounts for 30% of your score). By consolidating, you slash the amount of available credit and jack up the percentage of your credit used in one move-not good. Keep your balances to no more than 25-30% of your credit limit.
7. Closing old credit card accounts you don't use. You might think that closing lines of credit you aren't using sounds smart, but not so fast! The length of your credit history counts for 15% of your score, so closing older accounts is actually a negative. Plus remember how the percentage of credit used counts against you? Well, closing old accounts with no balances can increase the percentage of available balance you are using-another no-no.
8. Bankruptcy and foreclosure. It won't come as any surprise that these are the "big kahunas" when it comes to killing your credit score. But what may surprise you is how long they will continue to hurt your score. Bankruptcy stays on your record for 10 years and can easily drop your score 200 points. That means if you are lucky enough to even be able to get a loan, you will pay sky-high interest rates for the privilege.
Now we have one last big surprise...an item that won't hurt your credit: credit counseling. If you are in over your head and want to see a credit counselor for help, it won't negatively impact your credit score one bit. To watch us debunk more credit score myths, click here to watch our new video on Dolans.com!