Your credit score is a big part of qualifying for a home loan. As you get older and start applying for loans, whether it be home loans, car loans, credit lines, etc. it’s common to hear the phrase “check your credit score” to be sure you can qualify. And while you know that paying bills on time, and getting credit pulls affect your scores, there are others factors that can impact your score that you may not be aware of. Here are 5 things you didn’t know could affect your credit score.
5 Things You Didn’t Know Could Affect Your Credit Score
If you don’t pay a bill for months and months, the outstanding debt could be sent to collections. These third party debt collectors typically report these debts to the credit bureau, significantly dropping your credit score. These day to day bills could include utility bills, cell phone bills, library fees, medical bills, and even your gym membership. A good way to stay on top of this is to review your bank statement each month. By cross referencing your payments with your monthly bills, you’re able to catch any missed bills before they get sent to collections.
Late tax payments
Like most things, a late payment generally does not affect your credit score if it’s the first time. However, having a late payment on your taxes will affect your score down the road. The IRS may file a Notice of Federal Tax Lien on you if you wait too long. If this shows up on your credit report, it will lower your score tremendously! These notes are also difficult to get removed, requiring an extensive amount of paperwork and a lot of time.
Applying for multiple credit cards
While it sounds enticing to apply for a credit card at all of your favorite retail stores to get 15% off of your purchase that day, think again! Every time you apply for a new credit card, the company pulls your credit which affects your credit score. Too many hard pulls of your credit can significantly drop your credit score, especially if you’re getting credit pulls on the regular. And even if you don’t get approved for the credit card, your credit has been pulled and therefore affects your credit score.
Closing credit card with no balance
Say you had a Best Buy card so you could pay for a TV over 12 months. After you’re done paying your TV off, it’s important to keep that card open. Most stores leave your card open for up to 12-24 months after a $0 balance, meaning that if you buy something else from best buy in that time frame and put it on your credit card, it stays open for another 12-24 months. Once your credit card closes it lessens your total credit amount, which can lower your overall credit score.
Having high balances on credit cards
Just because you have a credit card, doesn’t mean you need to use all of the credit every month. In fact, if your account balance is coming close to your credit limit regularly, you may be risking some credit score points. A good rule is to keep your balance under 30% of what your credit limit is. Remember, if you have to make a large purchase on a credit card, [pay off as much as you can that month so the charge doesn’t stay in your account balance.
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