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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This article is wrong on many points in my opinion.
I do use my credit cards and carry balances, but I usually defer the interest and I pay them off before the deferred interest is due. This way it's like getting a loan for free. Yes, I do have store cards cause they offer deferred interest and I run balances for up to the 33rd month of 36 months deferred interest plan on them. Or 6, 12, 18, and even 24 months deferred.... I just make sure I pay the balance off
Insurance checks are meaningless and for the most part so are cell phone checks on a credit report. Don't pay your cell phone bill would be a lot worse of a credit mistake, or better yet don't pay your insurance bill, or let the insurance lapse.... Talk about credit score damage.
If I want to by a motorcycle, boat, or a snowmobile I'd get an installment loan for this purchase. I wouldn't use a credit card to buy one of these... Using a credit card for one of these is stupid.
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.
2. A closed account stays on your credit report for approximately 10 years and during that time most certainly does continue to factor into your account age.
3. Interest concerns aside, an account with a zero balance still factors into your overall credit utilization.
5. Inquiries on your credit report have a minimum influence on your credit score. If you need a cell phone, get one.
6. Auto insurance inquiries are soft inquiries and have no effect whatsoever on one's credit score. They are invisible to everyone but you.
7. A little common sense goes a long way. First of all, your APR is irrelevant if you pay your bill in full every month -- as you should be doing. Second, while lenders may reduce your credit limits if you call attention to yourself, they will generally only do so if they see something they do not like on your credit report. What idiot is going to call in for an APR decrease knowing their credit reports contains negative information?
Methods of rating credit scores are seriously flawed/anyone can report anything to these agencies causing problems and in the United States big business is always going to get the benefit of the doubt. Without using the practices you spoke of it would be difficult to operate in today's economy and by using some of these you would save money in the long run!
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.
From the Savings.Com website (where this blurb came from):
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Julie Bawden Davis - the writer of this piffle is working for the BANK !!
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.
It used to be that you had to be a real f*ckup to ruin your credit rating. Anymore, creditors and credit bureaus watch you like a damn hawk! I am sick of it!!!
And this credit score thing; it' the lazy-man's alternative to sifting through pages of an actual credit report.
Its a damn dirty shame that you can be a perfect on-time payer, not owe anyone a single penny, and end up with a lousy credit score,
Also, the use of credit scores for employment and insurance purposes needs to be banned nationwide immediately!!! I would gladly swap Obamacare for this very necessary piece of legislation! It's the poorer person that always gets screwed by Corporate America, the big banks, credit bureaus, FICO, etc., and if Obama is for the poor as much as he claims, this would be the best way for him to prove it!!!
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.
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