Surprising Things That May Lower Your Credit Score
Written by: Kristy Welsh
Last Updated: September 25, 2017
If you have thought about fixing your credit or maybe you are already in the midst of the credit repair process, you know the end result is a higher credit score. Throughout this site, we give you tips on what to do to increase your score but we haven't really touched on what NOT to do. We uncovered some surprising things you might unintentionally do that will affect your credit score in a negative manner.
Renting a Car
Yes, you read that right, renting a car may have a negative impact on your credit score. Reason being, there are a few rental car companies that will pull a hard inquiry on your credit prior to renting a car to you. One such company, that does this as a routine practice if you are trying to rent a car using a debit card, is Dollar Rent-A-Car.
As you know from our article on How to Erase Credit Inquires From Your Credit Report, a hard pull inquiry can affect your score. So, before you rent a car, make sure to ask the company if they are going to pull your credit and if so, go to a different company or use a credit card to rent your next car.
Applying For Credit
This is a good segue from the prior point because applying for credit is another way of getting an inquiry on your credit report. Every time you apply for credit, be it a credit card or loan, a hard inquiry is placed on your credit file which may lower your credit score. It may be a few points, but the more you apply for credit, the more the negative points add up. To avoid this scenario, talk to the lender first before they pull your credit and see what their criteria is for a loan. If you are fixing your credit, chances are you already know your credit score so you will know if you qualify for that loan or not.
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Having Credit Cards But No Loans
One very important part of your credit score is the diversity of your accounts. According to FICO, the category of "types of credit used" makes up 10 percent of your credit score. That may not seem like a lot, but it is an important factor when determining your credit score.
When evaluating the types of credit used, the credit bureaus are looking for different types of accounts such as revolving, installment, mortgage, and other consumer finance account. The more diverse your credit portfolio, the better.
Just a Single Late Payment
We actually just wrote an article on this very topic, One Late Payment Makes a Big Impact On Your Score - True or False. Guess what, it is TRUE! If you are thinking about paying on the credit card late or missing a payment altogether because you think it won't matter — it will.
One way to avoid this is to determine with the lender, how late is late? How many days can go by after the payment due date before they consider your payment late. Is it 10 days, 25 days, 30 days? And, while you are at it, give them a call to explain your situation. Chances are, your lender will be more willing to work it out with you if you call them then to just miss a payment altogether.
While you were married, chances are you bought a house together, a car, and probably obtained a few credit cards which were all in both of your names. Now you are divorced, but does that mean you are off the hook for that loan on the car your husband took in the settlement? Well, if you were a co-signer on the loan, you are still on the hook for the loan and this loan is going to show up on your credit report until it is paid off.
Any joint accounts will remain on both parties credit reports. If your ex declares bankruptcy, creditors will come after you for balances on any joint accounts. And, any late payments will show up on your credit report as well. The best thing to do prior to and during a divorce, is to get these loans into one or the others names alone. That may mean applying for the loan all over again but it will be worth it down the road if your ex becomes financially insolvent.
Closing an Account
Many people think getting rid of a credit card they no longer want is a good idea as it will show lenders they are not so credit-dependent. But, this is a bad idea for two reasons:
- It can raise your utilization percentage.
- A closed account is often purged from your report sooner (7 to 10 years) than an open one, which can remain on your report indefinitely causing you to lose all of the positive credit history associated with that account.
So, as you can see, there are few surprising things you might inadvertently do that could lower your credit score. We always talk about what to do to increase your credit score, but we also need to be aware of those little things that could lower it as well. Now, go ahead and start working on repairing your credit — you have all the tools you need right here on our website to increase your score and fix your credit.