Credit Reports

Seven Ways You Can Harm Your Credit Score Without Knowing It

On the surface, credit scores are simple: You take a specific action, and your score changes to reflect it. However, you might do something you assume is harmless or even beneficial to your credit, only to see your score take a hit.

Here are some little mistakes that can have a big impact on your credit.

1. Waiting Until the Due Date to Make a Payment

Most credit card companies issue balance reports to the credit bureau before the end of the billing cycle – and before you make your payment. This means that a larger outstanding balance could be reported. To avoid this, pay your balance before the close of the billing cycle. Contact your credit card issuer to find out what date they report balances to the credit bureaus.

2. Closing a Credit Card

If you finally paid off a credit card and don’t want to go into debt again, closing the account might seem like the right thing to do. And it can be ― but before you do it, make sure you don’t have balances on other cards, too. When you close a credit card your outstanding debt remains the same, which can cause your credit utilization ratio to jump and your credit score to fall. Plus, the credit bureaus like to see consumers keep accounts for a long time.

3. Applying for Store Cards to Get a Discount on Your Purchase

Every time you apply for a credit card, there’s a hard inquiry on your credit. Just one inquiry has little to no impact on your credit score – but several can take a hit on your score. Also, these cards can carry high interest rates and reduce the average age of your credit history. Don’t stress about opening one or two store cards with retailers where you shop often just avoid applying just to save a few bucks.

4. Co-signing on a Loan

If you have great credit, a close family member or friend might ask you to help them by co-signing a loan. Think twice: a late payment by your co-signer could send your credit downhill. Unless you can afford to make payment if they fail to do so, be careful co-signing any loan.

5. Paying Off a Loan

It would make sense once you’ve paid off debt, your credit score would increase, right? Usually your score won’t immediately reflect that you’ve paid off your loan – it may dip initially due to disruption and in a month or two will even out.

6. Not Checking Your Report and Score

Sometimes a drop in your credit score is because of an error on your credit report or even fraud. If you’re unaware of any problems, a small issue can turn into a big headache over time. So regularly check your report and score for anything out of the ordinary.

7. Avoiding Credit Completely

You must use credit to build up a strong credit history. That doesn’t mean you have to go into debt ― you can use credit responsibly. If you avoid credit altogether, you may have a hard time accomplishing basic financial goals, such as renting an apartment, opening utility accounts and borrowing money at an affordable rate.

Credit scores go up and down all the time – so don’t worry! The best thing to do is focus on using credit responsibly by keeping your balances low and always paying on time.

Financial education is a cornerstone of City CU. For more information about how to improve your credit ratings, schedule a free one-on-one appointment with our Community Outreach Team:

D Newkirk, Community Outreach Manager – D.Newkirk@citycu.org

---

Credit Reports

Your credit report provides information about your credit history, including a list of open loans, accounts and credit inquiries. You’ll also see details on your payment history, credit utilization and any public records that show up on your account.

Your credit score – which ranges from 0-850 – indicates how creditors rate your risk as a borrower. A higher score means a lower interest rate. A lower interest rate means saving money.

Why do credit scores differ?

Three major credit-reporting bureaus—Equifax, Experian and Transunion—and two scoring models—FICO and VantageScore—determine credit scores. Financial institutions use different bureaus, as well as their own scoring models. Over 200 factors of a credit report may be considered when calculating a score and each model may weigh credit factors differently, so no scoring models are completely identical. Regardless of the credit bureau or credit scoring model used, credit scores fall into specific ranges: Excellent 700+, Good 640-699, Fair 600-639, Unfavorable 550-599 and Below Standards 0-549.

Why don’t I have a credit score?

Credit scoring models cannot generate a score without enough credit information. If you have little or no credit history, you likely will not have a credit score available.

How do I check my credit score or view my credit report?

City Credit Union’s Advantage Checking account offers a free credit report every 90 days, credit monitoring and other helpful tools.