A healthy credit score can give a person the ability to buy a house, get a job, or increase buying power. Unfortunately, over half of all Americans will be denied some form of loan or credit card due to bad credit.
Don’t get stuck with a poor credit score that limits your financial future. Learn what hurts your credit score the most.
If you have a credit card or a loan, then you have debt. The less debt you utilize, the better your score will be.
The credit utilization ratio will account for 30% of your credit score. If you use less than 20% of the maximum amount, your score will steadily rise.
Remember, having debt doesn’t have to be negative. Take on debt you can handle to increase your score.
2. Payment History Is What Hurts Your Credit Score the Most
Do you struggle to make payments on time? Failing to make consistent on-time payments will cause a credit score to plunge.
A person’s payment history will reflect mortgage loans, car loans, student loans, and credit card bills. Every month, a credit report is sent to the major bureaus to calculate your score.
If you can’t pay your bills and declare bankruptcy, you will see a huge negative effect on your credit score.
3. Types of Credit
Spread your credit amounts among diverse accounts. It might seem like a great idea to put all your credit in loans, but it’s actually better to mix it up.
Credit cards make up your revolving debt, and car loans and mortgages are installment debt. The strongest credit scores will have an even mixture of both.
Instead of paying for something with cash, consider opening a store credit card or taking out a loan. Try to achieve balance with your various credit accounts.
4. Longevity of Credit
A major contributing factor to a bad credit score is the age of credit. If you haven’t had a mortgage or credit card for long, then it’s going to be tough to increase your score.
The credit bureaus will add the age of all your credit accounts and then divide by how many you have. They will also look at the age of your oldest account.
The longer the credit history you have, the better your score will be. Before you open a new credit card or take on a new loan, remember it can drive your credit score down.
5. Credit Inquiries
Any time you apply for a loan to buy a home or car, there will be a credit inquiry. Institutions are just doing their research to see if you have good credit before giving you money.
These inquiries are called hard inquiries and will damage a credit score temporarily.
Some credit card companies let you check your score without it hurting. This is called a soft inquiry.
Avoid having hard inquiries done repeatedly in a short amount of time. It will drive your score down fast.
Protect Your Credit
Knowing what hurts your credit score the most is the first way to protect it. If you can practice sound financial habits, you will be on your way to a high credit score and secure financial future.
A strong credit score will open up bigger opportunities for you.
For more articles to improve your life, keep exploring this blog.