Unexpected Factors Affecting Your US Credit Rating
The credit rating has a lot to do with life in the United States - the ability to get a credit card depends on it and much more. But do you really know everything about a credit rating? You may have a general idea of what a good credit rating is. But there are several factors that may surprise you. Credit.com.
1. Payment history
Your payment history greatly affects your credit score. It accounts for about 35% of the credit rating. Basically, it's a record of whether you paid your bills on time.
Lenders report your payment activity (good or bad) to the major credit bureaus. One delay is unlikely to hurt your rankings, but multiple delays do. And the later the delay is paid off, the worse. This may be the lack of payments for:
- credit card accounts;
- student loans;
- mortgage loans;
- car loans.
Other types of payments, such as utility bills or a phone bill, usually do not affect your credit score when a late payment is due, but can do so if you are several months behind and the provider directs your debt for collection.
2. Amount of debt
The amount of debt you have to pay back to different accounts is 30% of your credit score. This debt, also called utilization rate, is calculated by comparing how much revolving loan was given to you (aka your credit limit) with how much you used.
For example, if you have one credit card with a $ 200 balance and a $ 1000 credit limit, the loan utilization rate is 20%. It is best to keep overall loan utilization at 30% or less.
3. Credit age or credit history
Credit age affects 15% of your overall score. The lender pays attention to two main things:
- the age of your oldest credit score;
- the average age of your accounts (calculated by adding the age of each account and dividing by the number of existing accounts).
As you probably guessed, the older your accounts, the more it affects (with a plus sign) your rating. For this reason, try not to close your old accounts unless there is a compelling reason to do so.
4. Combination of accounts
The credit mix affects 10% of your account. This refers to a good mix of revolving accounts and installment accounts. In other words, try to have a good mix of bills such as credit cards and loans.
On the subject: Study: Americans have serious credit rating misconceptions
5. Loan requests
Credit inquiries arise when someone checks your credit, and they can be soft or hard. Soft inquiries do not affect your credit score. When a lender checks your creditworthiness to find out if you are eligible for a loan, there is a major investigation ahead. This can lower your rating slightly, and complex queries account for about 10% of your credit rating.
Amazing Things That Affect Your Credit Score
Looks pretty straightforward, right? Pay your car payment and credit card bill on time, keep your old credit accounts open, don't increase your balance or apply for a bunch of loans - and your credit score will be fine. It's actually a little more complicated. Here's what can negatively affect your score:
1. Error reporting
Inaccurate negative information on your credit reports affects your rating. Problems can arise from data entry errors, identity theft, or other issues. Track your credit report with services such as ExtraCredit or Credit Report Card, or order free credit reports at AnnualCreditReport.com.
If you find an error in one of your credit reports, contact your credit bureau for confirmation. If you have multiple bugs, you need to dispute each one separately with the bug reporting bureau.
2. Parking tickets
Leave your parking ticket unpaid for a long time and the city will most likely send it back for a refund. Since fees are included in outstanding debts, they can appear on credit reports and damage your credit rating.
3. Utility bills
Likewise, unpaid utility bills can negatively impact your credit score when debt is sold to a third-party debt collector who can report it to credit bureaus.
4. Medical bills
Although medical bills are handled differently by credit bureaus, they can still affect your credit if not paid. As a rule, credit bureaus do not immediately report unpaid medical debt as soon as it becomes known. This gives you some time to work with your insurance company and service provider to pay your bills. But eventually this data may appear in your report.
5. Overdue alimony
Unpaid child support is considered debt. The municipality or the agency responsible for collecting payments can report this to the credit bureaus.
6. Repayment of the loan
If you repay your car loan and it is the only installment loan you have, your credit rating will probably suffer too. This is because you can shorten your loan portfolio.
7. Closing a credit card
If you close your credit card, you will lose part of your credit limit. This can lead to an increase in the loan utilization rate, that is, the credit rating will decrease.
8. Failure to pay rent
Previously, timely lease payments had no effect on credit. And in many cases this has remained the same. But the credit reporting industry tends to include rental data in certain versions of your credit reports. And the industry allows landlords to report payment data.
However, even if the lender or service provider does not review this data, a missed rent could result in the transfer of the case to the collectors. And the collection agency will certainly report your debt.
9. Old gym membership
Unpaid gym memberships can accumulate, so it is important to cancel what you no longer use. Do not close or cancel the card you used to pay for your membership. Cancel the membership itself.
10. Bank overdrafts
Checking and savings accounts are not included in traditional credit reports. Even so, if you opt for overdraft protection tied to a line of credit and don't address the surplus problem, you could harm your credit rating.
11. Request for an increase in the credit limit
When you ask your issuer to change the terms and conditions associated with a credit card, they will most likely check your credit to see if your current situation supports the change. This can lead to serious requests for your credit report.
However, if the credit limit is increased, the small damage caused by the request can be easily mitigated by improving the credit utilization rate, so there are times when asking for an increase is worth it.
12. Opening a certificate of deposit
A certificate of deposit (CD) is a savings account. Well, can its opening affect your credit? Oddly enough, not all, but some financial institutions do carefully check your credit when you open a new CD.
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