Do you understand your credit score? Many understand the basics, it is a number based on financial relationships that you have had with significant companies, like banks and apartment complexes. For example, if you do not pay a bill, or default on a loan, or miss a rent payment, you are reported immediately and your score drops a point or so. The more often these things happen, the worse your credit score. The less often it happens, the better your credit score. It’s simple enough right?
The concept is right, but the larger scope is missing from the picture. There are a few other things you do that might surprise you by hurting your credit score.
- Not having any credit. Being off the radar can be just as bad as on it. If you have never had a credit card nor ever took out a loan, then you are an unknown anomaly to the world. Banks are far less likely to grant you a large loan or a credit card with a large balance because they do not know if they can trust you.
- Spending too much consistently. Credit scores are weighted heavily based on how much you owe on revolving accounts. For instance, if you have a credit limit of $500 on your card and you have a $50 balance, then you are using 10% of it. Your goal is to stay as close to 0% as you can. Some will tell you to stay between the 30 and 50% range, but in the long run, the healthiest level is zero, as you don’t owe anything in that case. Consistently low percentages show the credit companies that you have a solid foundation. Note: Companies also look at all of your balance histories on all of your revolving accounts.
- Pursuing new credit lines. Believe it or not, the more often you make credit inquiries or apply for a new credit card can hurt your credit score. Keep these things to a minimum. They will hurt you more than help you, even if you get a few new credit cards in the mail. The fewer cards you have, the better off your credit score will be.