12/30/2011 4:23 PM ET|
Innocent ways to wreck your credit
Sometimes a credit report can be hurt by financial moves that might seem harmless at first. Avoid them and you can protect your score from a downgrade.
You already know that late payments or a bankruptcy filing can damage your credit score. But did you realize that otherwise insignificant financial decisions can also cause your score to plummet? Keep your credit report pristine by avoiding these potentially destructive moves whenever possible.
1. Opening a department store card
It may seem like a great idea when the cashier suggests it: open a store credit card, receive an instant discount on your purchase. But it often pays to decline the card in spite of the discount, because the savings may not be worth what the transaction will do to your credit score. New card applications initiate a hard inquiry on your credit report, which can lead to a drop in points.
2. Closing a credit card account
If you've scrimped and struggled to pay off a card, your initial reaction may be to cut up the plastic and close the account. Resist the urge. Various factors are taken into account when calculating your creditworthiness, and 15% of your score is determined by the length of your credit history. By closing an account, especially an older one, you shorten your credit history. The more established accounts you have, the higher your credit score.
Credit card companies also look at how much of your available credit you are using, which is referred to as your credit utilization rate. They like to see 35% or less of your credit in use at any one time. Paying off a credit card and leaving it open improves your utilization score, but closing it could do just the opposite.
3. Keeping a zero balance
Paying off a credit card completely seems as if it should do wonders for your credit, but it could be better for your credit score to leave a small balance on the card. When a small amount is owed, the remaining credit on your card is factored into your credit utilization ratios, whereas cards with no balance don't count. So oddly, your credit score can actually drop when you bring a card balance down to zero.
4. Disputing a credit card transaction
Of course, you should always call your card issuer if a curious charge appears on your credit card. But be aware that filing a formal dispute may cause the card to be temporarily removed from your credit scoring, which could negatively affect your credit utilization score. If possible, avoid filing disputes within 60 days before applying for additional credit.
5. Purchasing a cellphone plan
Many of today's cellular phone providers check credit history to make sure that you pay your bills. But doing this constitutes another hard inquiry that is likely to ding your credit score by a few points. Shopping around for the best cellphone deal is a good thing -- just be sure that every provider isn't checking your credit.
6. Buying auto insurance
Again, most major auto-insurance carriers check your credit report when you apply. While a good credit score can earn you lower rates on insurance, make sure the savings you receive from the new policy outweigh the potential hit to your score.
7. Negotiating a lower APR
Negotiating a lower annual percentage rate on your credit card may seem like a smart move for cutting expenses and boosting your savings account, but when you do, ensure that your creditor doesn't reduce your credit limit. If that happens, it could affect your credit utilization ratio and lead to a drop in points.
8. Taking out a student loan
Student loans are often reported as they are disbursed, which means that a single loan can appear on your credit report multiple times. For instance, if you receive loan disbursements each semester during four years in college, this could look like eight separate loans. Consolidating all of the loans after graduation can improve your credit score, but in the meantime, be wise about your borrowing.
9. Keeping a high balance
The amount you owe on your accounts determines about 30% of your credit score. Lenders consider those who use a low percentage of their credit -- such as 35% or less -- to be a low credit risk. Such individuals get a higher credit score as a result. Spending 80% to 90% of your available credit limit negatively affects your credit score for the opposite reason.
10. Buying a motorcycle
It might seem unfair because motorcycles are technically vehicles, but a loan to buy one is often categorized as revolving credit. This can lower your credit score, since such loans look no different than substantial credit card debt does. So make sure you really want that new sport bike before you roll it out of the showroom.
Naturally, some of these transactions are easier to avoid than others. But by knowing the threat they pose to your credit, you can better understand when these moves really make sense.
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These credit score companies should be illegal under our constitution.
They get private data on your purchses and then sell the data as a commodity with out your permission. They should be paying us to use our data!!
I always thought it interesting that any sleeze ball business could see your credit score easier than you could. It actually took an act of congress to force the companies toprovide data back to the individual who actually owned the credit data in the first place.
I here by think that a class action suit against these agencies and their cronies in business should be issued based on sleezy practicies and violation of personal privacy rights.
Whats next? Collecting and selling your medical history; it would be no more private than you credit history.
The whole credit industry should be eliminated!! Each individual should be totally incharge of determining who has access to their credit history.
The reason credit reports are off the wall in the way they judge our credit ability is that Congress allows a few companies to dictate how we should live our financial lives. No one should should be allowed to follow our social security numbers and decide our spending habits if we pay our debts on time.
Would someone PLEASE start a new credit bureau using REAL WORLD use of a person's credit history. Giving more points to close an account to give more room for more credit. Not taking points away when you pay "the total due". Not dropping points when a person or company checks on your credit score. ( A person out of work who works in an industry where a credit check is mandatory for employment is dinged for trying to find work!). I think you get the idea. Life is TOO short and hard as it is.
The Whole article is a bunch of BS.That is why people are in such financial trouble, because they believe articles like that.
.we PAID OFF and Closed 3 Credit cards within 3 months of each other.kept 1 card open( just in case) but it has no balance and we haven't used it in over a year ...( People said doing that would lower our credit score..lol) ..2 months ago we went to the bank to get a loan for a used(we never buy new) truck..our credit score was so good that we got a loan at 4%.. that was 1 1/2 % lower the we got for a car that we bought 4 years ago..get rid of thoes damm cards and only do credit for a car or home.
Its 2012 and F*ck credit and credit scores. Credit is 4 ppl who don't have money. Unless its a home or a car don't buy it!!!!!!!!!!! If you don't have the money - just save until U do. Its way 2 easy and these credit card companies will one day learn that you cant take advantage of ppl anymore. Listen, if you need credit for an emergency -- fine, if not STAY AWAY. The days of "oh I have to have it now" are long gone.
All my life I've lived by the crazy notion that if I didn't have the money for something, I wouldn't buy it. The only time that caused me any problems was 9 years ago when I had to buy a car (still have it). After looking around to find the best deal, the only way I could buy the car was if my dad co-signed, because I had no credit history. It was a 5 year loan and I paid it off in under 2 years - ironic since I was apparently such a bad credit risk.
I'm 30 now and have recently gotten my first credit card, but I still would not even think about buying anything unless I had cash in hand to pay for it. I would not have even wanted the card in the first place if it were not for the fact that I may want to buy a house one day. You would think that a lifetime of never buying anything that I couldn't afford would count for something, but it doesn't.
What most people don't know is credit information isn't updated immediately. When you pay off a credit card, it isn't reflected on your credit score the next day. It takes about a month. What credit card companies report to the credit bureau is typically the amount for which a person was billed. Whatever showed up on the most recent statement as far as the balance and the minimum payment is typically going to be the information on the credit report. Once you receive the bill for that amount, you can pay it off BEFORE interest starts accruing, and add to your payment history while avoiding interest. (This also means that if you pay off a credit card, it'll show the balance and minimum payment on your credit report, which would be factored into your debt to income ratio on a mortgage application. To avoid that, you need to pay off the credit card in full before you are billed for the money, thus showing a zero balance and zero minimum payment on your bill.)
A financial writer advising a consumer that carrying a balance and paying interest will give a better credit score is negligent.
The writer is a novice. MSN should not publish such lame articles with mostly misleading information.
1. Opening a department store card - Not a problem if your credit is good and you pay off balances every month. Also, for many people with insufficient credit Opening a department store card is a good way to establish credit.
3. Keeping a zero balance - This one should be use a credit card at least once in 6 months. Don't leave a credit card unused for a long time. Using a credit card and paying off your balances increases your credit worthiness.
5, 6 and 10 - are BS from the author. The advise should be don't take any form of credit unless you absolutely have to.
the hell with credit scores. It's another way to fleece the public into thinking you are a law abiding citizen. Banks go bankrupt, lose billions, pay out huge salaries & bonuses to their top dogs, & get bailed out when people don't pay. The "all mighty " credit score is a scam.
Loans should be given out for big ticket items , like houses & cars, from a thorough check of employment history, pay, & payments for every months bills. Too many bad loans were given to completely false loan applications,& that's how all this housing mess got started. Banks did not use true credit histories or financial checkups..much less "all mighty" credit checks.
Once again another bank scam, run amok for "profits". Who is paying for it all now? The 99% of America taxpayers. The 1% are the ones who profited, & they don't need credit scores, because there so rich, they can pay cash. Their riches were mostly supplied by fuzzy dealings over the past few years.
Like another poster put here, pay with cash, or learn to downsize. Blow off the cards, & make your money pay you. Don't get suckered into the new scams, like B of A is starting, ..get cash back on purchases bs. People are dropping their cards like mad, & now their trying all sorts of gimmicks, to make you feel, like they're paying you something. Shop w/cash, or use a credit union debit card.
I'm on the Dave Ramsey bandwagon, if you don't have enough money to pay for it, don't buy it until you do. Haven't used credit cards in years and we are doing just fine. We are not worried about our credit score, because there is nothing that we need to get/buy/finance that will depend on this number. When you pay cash for everything, your credit score becomes just another meaningless number.
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