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3 Unexpected things that can affect your credit score!
by
Kedy J
You can think of your credit report as your personal financial report card. It helps institutions such as insurance, banks and lending companies to determine how worthy you are of paying back your loans and if you are likely to default on a loan or miss payments. Employers, government agencies, and landlords also look at your credit before approving your application or confirming any type of transaction for you. However, what is on your credit report and how can it have a huge impact on your overall credit scores?
What Makes Up Your Credit Score
There are various factors that come into play that are
what affect credit score
numbers and can affect your ability to repay debt. The formula involved is a complex one that takes into account your past ability to pay outstanding debt, pay off previous loans, and the salary you are making today. Your credit score can change instantly–either positively or negatively–depending on the amount of debt you have and how you pay your bills. Different factors for determining your credit score are known as your character, capital, and capacity. This is also known as the three C\’s.
The Three C s in CreditCharacter-
Looking at your credit history, any lender can determine whether you are reliable and honest when it comes to paying off a debt. You can avoid late fees and help your score by paying your bills on time. When you have a payment history that is good, it shows lenders that you are responsible. The longer you have this good history, the better. Missing or late payments will have a negative effect on your score, as will foreclosures, collections, and bankruptcies. When trying to figure out how a credit score is calculated, just know payment history tends to pull the most weight, so it is important that you stay on top of it.
Capital-
Lenders will look at valuable assets you have like personal property, savings, real estate, or investments to help pay off your debt in the event you have no income. You can improve your credit score by having a record of paying different forms of debt. Factors affecting your credit score positively are having a combination of good credit like home loans, credit cards, and auto loans. When you only have one form of credit like credit card accounts, for example, this will not positively help your credit score; therefore, it is essential that you have diversity in credit accounts.
Capacity-
Capacity refers to how you are able to pay your debt. Lenders will check to see if you have regularly held an occupation and if it is enough income to repay your debit.
Unexpected Things that can Affect Your Credit Divorce-
When you are going through a divorce, you essentially divide your debts and your assets. However, just because your former spouse assumes the mortgage loan, does not mean it cannot affect your credit.
According to Gerri Detweiler
, Director of Consumer Education of Credit.com, \”The account remains on their credit report and remains their responsibility until it is paid and closed. And even then it won\’t be removed from their credit history. He continues to say, Plus if your ex declares bankruptcy, creditors will come after you for balances on any joint accounts.
Owning credit cards, but no loans-
An essential part of your score is a combination of different credit accounts. Lenders are checking to see if you are able to handle both non-revolving and revolving credit types. Although having just one type of credit account negatively affects your credit score, it is not a good idea to take out another loan type just for the purpose of improving your score.
Applying for credit-
When you apply for credit, regardless of whether you are approved or not, it places a
hard inquiry on your credit report
which lowers your score. However, you will not be hit for both the inquiry and the rejection. When you apply for credit and are rejected, your denial does not show on your credit report and has no impact on your credit score except for the inquiry alone.
Importance of Monitoring your Credit Score
Various people find significance in your credit history such as banks, mortgage lenders, prospective employers, utility companies, and so forth. Therefore it is important that you comprehend your credit score, credit report, and the companies that list this information, which are the credit bureaus. Although your main focus might be to lower your balances, you also need to take action to boost your credit scores, which will help you to qualify for lower interest rates later on down the road. You need to know what your score is so you can do what is necessary to make improvements if needed.
Most people know the main factors that have an effect on their scores like late payments, credit cards nearing their limits, and unpaid bills. However, other things can have an impact on your score, as well, which many people do not realize. Therefore, it is essential that you regularly monitor your credit score and have an understanding of what affect your credit score has on your financial well-being.
Kedy
is an active finance blogger who is fond of sharing interesting finance management tips to encourage people to manage their personal finances. More specifically, she advocates that people should check credit reports and scores regularly.
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