3 unexpected ways it can harm your credit score

Your credit score affects a variety of things, from where you can rent property to how much you’ll pay if you get a mortgage or car loan. Therefore, it is very important to keep your score as high as possible.

Unfortunately, you may not be aware that your credit score is actually declining. There are three unexpected factors that can affect this, so it’s important to be aware of them so you can do everything possible to get great credit.

1. Not checking your credit report for errors

Did you know that mistakes on credit reports are pretty common?

An FTC study found that one in four consumers found errors on their credit reports that could potentially affect their credit scores. And one in ten consumers have seen their credit scores change after notifying the credit bureaus and correcting errors. In a small number of cases (1 in 250 consumers), consumers saw their scores increase by more than 100 points after correcting an error.

You don’t want your credit or credit card or loan eligibility to be affected by data that doesn’t belong in your report. To prevent this from happening, visit AnnualCreditReport.com regularly (at least once every few months) to look at your credit report for free. If you find an error, you can notify Equifax, Experian, and TransUnion so they can take action to correct it (learn how to fix errors on your credit report in this guide).

2. Not paying attention to when to report balances.

There is another common mistake that many people don’t know about. This has to do with when your credit card company reports your balance and when you pay it off.

Your credit utilization ratio (or the amount of credit you have used relative to your available credit) is a very important factor in your credit score. It accounts for 30% of your FICO® score, and a lower ratio is better than a higher one.

Now, if you’re paying off your balance in full, you might think there’s no problem with this factor. but The problem is that card issuers don’t necessarily report the balance immediately after payment. And this may result in higher balances being reported.

For example, let’s say your credit limit is $1,000 and you make $800 in purchases, but you repay them every month. If your card issuer reports an $800 balance before you repay the card the next day, it looks like your utilization rate is 80%. This is significantly higher than the 30% maximum required to avoid score damage.

Check with your card issuer to avoid lowering your credit score due to a payment date that doesn’t match when your balance is reported. when Report balances accurately. You can also figure this out by checking the amount reported on your card and checking your credit card statement to see if your balance matches that amount.

Try paying in full. before Depending on how long your creditors report, your reported balance will be very low and your score will be high.

3. No mix of different types of credit

Finally, not mixing different types of credit can also affect your score. For example, if you only have credit cards and no installment loans (personal loans, car loans, mortgages, etc.), your score may be lowered. Installment loans show that you can take responsibility by taking out a loan over a set period of time and repaying the debt according to a set schedule.

Your credit mix accounts for 10% of your FICO® score, so it may be a good idea to try a few different types of loans. For example, even if you have the cash to make a purchase, if you take out a car loan and pay off the loan a month or two later, a different type of credit will show up on your report. Keep in mind that you don’t want to keep borrowing a lot of interest just to bump up your score a bit. So be careful how you do this and don’t borrow too much for too long if you don’t really need it. .

The good news is that you now understand how these can potentially hurt your credit score and impact your personal finances. You can do everything you can to avoid inadvertently ending up with a poor credit standing that makes you look less attractive to the creditors and companies you do business with.

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