5/14/2012 7:16 PM ET|
6 things that won't hurt your credit
You may be needlessly worrying that a mistake, habit or event has torpedoed your scores. Here’s how to avoid the damage.
Losing your job or emptying your bank account won't directly affect your credit score. Neither will refusing to pay your rent. In fact, you could be in jail facing murder charges, and as long as your bills were paid on time, your credit score wouldn't suffer.
Of course, it's best to pay all your bills on time (and stay out of trouble with the law). Nevertheless, there are many things that you might think would affect your credit score but don't. For example, some quick thinking can prevent a late payment from lowering your score. Here's a closer look at six items that -- perhaps surprisingly -- won't harm your credit score:
1. Changes to your income or assets. "People get concerned that if they are laid off or get part-time work, that will affect their credit score, and it doesn't, as long as they continue to pay their bills," says Becky Walzak, the president of RJB Walzak Consulting, which assists financial institutions with risk management, including assessing the creditworthiness of loan applicants. Of course, losing your job can affect your ability to qualify for new credit as financial institutions review income and employment as well as credit scores. But receiving unemployment or even public assistance will not affect your credit score.
2. Not paying your rent. Let's say you're withholding your rent because you're in a dispute with your landlord, or you've broken a lease. "That doesn't show up on your credit score unless your landlord takes you to court and a judgment is entered," says Kelley Long, a certified public accountant and member of the American Institute of CPAs' Financial Literacy Commission. However, because landlords typically ask for references from prospective tenants, not paying may affect your ability to rent another place in the future. In fact, legal trouble of any sort will not affect your credit score, as long as you continue to pay any debts you've incurred.
3. Late payment of taxes -- up to a point. "Paying your property taxes late will show up on your credit score if your county puts a lien on your home," Long says. Depending on your county's policies and practices, though, that will probably take a while. Likewise, problems with the Internal Revenue Service won't immediately show up on your credit score. "If you don't pay your taxes and then enter an agreement with the IRS, that goes on your report as another loan," she says.
4. Late payments to small vendors who don't report to the credit bureaus. In order for a debt to count toward your credit score, it needs to be reported to one of the big three credit bureaus: TransUnion, Experian or Equifax. "Small vendors typically don't report to credit bureaus, and some large companies don't, either," Walzak says. Once a vendor sends your account to a collection agency, however, it typically will be reported to the credit bureaus, but since collection agencies pay only a portion of what they collect to their clients, most small vendors won't take this step very quickly.
5. Anything your creditor agrees not to report. There's another reason creditors may not report your unpaid debt to a credit bureau: because you asked them not to.
"Often, with mortgages, people work out modifications," Walzak says. "Then people think, 'I've got some debt relief and my car is shot,' so they go apply for a car loan and they're surprised to learn that their mortgage bank is reporting them delinquent. But it says in the mortgage agreement that if you pay anything less than the amount owed, you will be considered delinquent. So that's a question to ask when you're talking to a bank when reducing your debt or modifying your loan: 'Will you report me as delinquent?'"
And, she says, you can ask a credit card company not to report you, depending on the circumstances. "If you accidentally don't send a payment, or send it late one time, you should call the credit card company, let them know, and ask them not to report it. A lot of times they won't even mark it as late. What really hurts is paying late over and over."
6. Not carrying a balance. "The question I get most often is, 'What balance do I need to carry on my credit card?'" Long says. "You don't have to carry a balance to show good credit." The confusion arises, she says, because many people understand that if they have a credit card but never use it, it won't improve their credit score. That's because a credit score is supposed to show your ability to repay debt. You can't demonstrate your ability to repay debt if you never have any to repay. But using a credit card and paying it off each month is a great way to do this.
On the other hand, you do risk hurting your credit score if you run up high credit card balances, even if you pay them in full each month -- a strategy many people adopt in order to capture credit card rewards. Since high utilization (using most or all of your available credit) negatively affects your score, it can have a negative impact if the credit card company happens to report to the credit card bureaus on a day when your balance is high.
If you still want to chase those rewards points, though, there are strategies for avoiding this effect. "I use American Express to pay for everything and then I pay it off," Walzak says. "The closing date is the 27th of the month, and they typically report to the credit bureaus on the first of the month. So I make sure to get my payment in between the 27th and the 30th."
Remember that you don't actually have to wait till the closing date to make a payment, says Anthony Sprauve, the director of communications for MyFICO. "I use a credit card to make most purchases so as to accumulate airline miles," he says. "But I make multiple payments throughout the month."
Whatever your approach, keep in mind that a credit score is only one piece of your financial picture, and that any prospective creditor will consider many other factors, Walzak says. Someone with a less-than-perfect credit score who has extenuating circumstances may still get credit, while someone with a good credit score but a bad financial picture may not.
"I've seen so many people with good credit scores and then I look at the amount of debt they have and I think: 'These people can't manage their money,'" she says.
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This article states not paying your rent won't affect your credit. Bull. My daughter got caught in this web. Her name wasn't even on the lease but they knew her name & threw her in on it trying to collect the $$ from her or her soon to be ex. They didn't care who they got it from.
Six months later she tried to rent an apartment & guess what?! There it was. Luckily she had a copy of the old lease & showed she hadn't been on it nor had signed it. She got that apartment. The moral of this story: PAY YOUR RENT!
I think credit cards are a farce anyway. Finacial Institutes judges your credit report. More money you have the more you will spend. More you will use your credit card, the higher the credit score. The Higher the credit score the more the Finacial Institutions will be after you. Even after the Bank Bail out.. These guys still want your money. What ever happen to savings accounts?
Also, you need to inqire about what credit agency your stuff is reported to. Like if you have a credit card and it is only reported to transunion, but you apply for a loan and they go by your equifax, they won't see the credit card and won't know that you have been doing well with it. And don't think, I applied for a car loan at this place and they used equifax and I was denied, I should also build up my equifax, because the next place might use your experian, and you will be rejected again.
It can never hurt to ask if they can give you a loan based on your score from another agency. So the first place you went might have said no at first, but then they see that you have had good running credit for the past 5 years with transunion, they might say okay.
You need to owe money so you can get money to owe.
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