Many consumers are unaware just how much they are affected by their credit score. Everyday actions can have lasting negative ramifications on your credit history.
Healthy credit scores have many benefits:
- Approved for mortgage, car or personal loan
- Qualify for excellent credit card deals
- Improve chances of renting an apartment
- Receive better car insurance rates
- Lock in utility services
- Employment Opportunities
Top Facts You Should Know About Your Credit Score
1. Consumer credit counseling may not improve scores
Getting help from a consumer credit counselor does not mean your credit score will improve. Consumer credit counselors may be able to negotiate a lower monthly payment with your creditors; however, you may still be assessed the difference if the lower payment does not meet the original obligation in the credit agreement.
Many times consumers are surprised when they discover the difference in the lower payment amount negotiated and the original amount due is reported as late on a credit report.
Late payments are a serious credit score killer. If you want to improve your credit score make sure the balance as well as the payment is re-negotiated.
2. Credit scores can change frequently
Credit scores can change frequently due to a few main factors:
Regular Updates from Creditors: Lenders typically report updated account information to the credit bureaus every 30-45 days. This information includes things like your current balance, payment history, and credit utilization. Whenever this data changes, your credit score may be recalculated.
Multiple Credit Accounts: If you have several credit accounts, each with its own reporting schedule, your credit report could be updated multiple times a month, potentially leading to frequent score fluctuations.
Significant Credit Actions: Major credit actions like opening a new account, closing an old account, or applying for a new loan can trigger immediate changes in your credit score.
Changes in Credit Utilization: Your credit utilization ratio, the amount of credit you’re using compared to your total available credit, is a major factor in your credit score. If you make a large purchase or pay down a significant amount of debt, your credit utilization will change, which could impact your score.
Payment History: Your payment history is the most important factor in your credit score. Even a single late payment can cause a significant drop in your score. Conversely, consistently making on-time payments can help your score gradually improve.
Credit Inquiries: When you apply for new credit, lenders typically perform a hard inquiry on your credit report, which can temporarily lower your score. Multiple hard inquiries within a short period can have a more noticeable impact.
Identity Theft: Identity theft can lead to a sudden and significant change in your credit score in a short period.
Here’s why:
- Unauthorized new accounts. Identity thieves may use your stolen information to open new credit accounts in your name. These new accounts and the associated hard inquiries can quickly lower your score.
- Missed payments. If the thief doesn’t pay the bills on these fraudulent accounts, you’ll end up with late payments reported to the credit bureaus, severely damaging your score.
- Increased credit utilization. The thief may rack up charges on existing accounts, increasing your credit utilization ratio (the amount of credit you’re using compared to your total available credit). High utilization negatively impacts your score.
It’s important to remember that not every change in your credit report will result in a dramatic shift in your credit score. Small fluctuations are normal, especially if you have multiple credit accounts or are actively managing your credit. However, it’s always a good idea to monitor your credit report regularly to track changes and identify any potential errors or discrepancies.
Credit score changes can result in improved scores with the right credit hacks.
3. Paying a collection account will not increase credit scores
Paying a debt collector or creditor’s collection department will not raise your credit score. The reason being is the more recent the activity, the more weight it holds in the scoring system.
Paying off collection accounts, regardless of the age of the collection account, registers as recent activity. Should you decide to pay the account, negotiate a deletion from your credit report as this action may actually increase your credit score.
4. Bad credit can be temporary: Credit scores can be improved
Having bad credit is generally temporary. The negative information that contributes to a low credit score has a defined lifespan on your credit report. Most derogatory marks, such as late payments and collections, fall off after seven years. Even bankruptcies, which have a longer impact, typically stay on your report for 7-10 years.
However, a low credit score can be also result from the lack of positive revolving credit in your report. While you should always work on removing negative credit, adding positive credit can give your scores a boost.
Here are some ways:
Secured credit: The OpenSky® Secured Visa® Credit Card is a good choice for consumers looking to rebuild with a secured card. It has a low annual fee of $35. You can choose your credit limit from $200 to $3,000 and they report monthly to the three major credit bureaus.
Unsecured credit: The Destiny Mastercard® is a good choice because it reports monthly to all three major credit reporting agencies and perfect credit is not required for approval.
Authorized user credit: Becoming an authorized user on someone’s credit account who has a good payment history will add that good credit account to your credit history.
Joint credit: A co-signer on a loan or credit card is another option for adding positive credit as long as you maintain a good payment history.
As time passes and these negative items age or are removed from your report, their impact on your credit score diminishes. Additionally, by practicing good credit habits like making timely payments and keeping your credit utilization low, you can actively improve your credit score and overcome the effects of past mistakes.
