In today’s financial world, nothing seems more important than your credit score. If you want to buy a home, get a car loan, even land that great new job, you need a good credit score. So, what is this mysterious score and how is it calculated?
A lender who is thinking of giving you a loan is gambling on the fact that you will be able to pay them back. Your credit score is a good indicator of how much risk they will be assuming by giving you a loan. Keep in mind that different companies look at different types of data to calculate your score. This is why you may have a different score from Transunion than you may have from Equifax or Experian, but in general, all three credit bureaus look at some basic data in order to calculate your score. This includes the number and types of accounts you have, amount of credit used versus amount of credit available, and the length of your credit history as well as your payment history. So, what is it that might make your credit score take a sudden and unexpected tumble?
Well, we all know that paying bills late (or not at all) is a good way to damage your credit score. Ignoring that red or yellow envelope from a creditor practically guarantees your credit will soon be plummeting. So try to pay the ones that look like they’re on fire – these are bad colors when it comes to bills. There are, however, other sneakier ways for creditors to lower your score of which many of us may not even be aware.
For example, I was trying to buy a blouse at a major retailer who shall remain nameless – although their name rhymes with “JB Renneys”. The cashier asked me if I had a JB Renneys credit card. No, I said. Just fill out an application and you can get 20% off today’s purchase, they said. So like an idiot, I did. In my defense, 20% off – I mean, I’m only human. The next day I woke to find my credit had dropped ten points. If your credit is already teetering on the verge of disaster, ten points is a big drop.
So, – why did that happen? Well, what the nice lady at JB Renneys failed to tell me is that the store would do a “hard pull” before issuing me credit. A hard inquiry occurs when a lender with whom you’ve applied for credit reviews your credit report as part of their decision-making process. This type of inquiry appears on your credit report and can influence your credit scores. While this impact is often short-lived it still hurts. Compare this to a “soft pull”, which occurs in cases where you check your own credit or when a lender or credit card company checks your credit to pre-approve you for an offer. Soft inquiries do not impact your credit scores. This is merely one of many ways to send your scores plummeting.
Less obvious ways to damage your credit include:
• Reporting Errors. Inaccurate negative information on your credit reports can impact your score
• Parking tickets
• Utility bills
• Medical Bills
• Delinquent Child Support
• Paying off a loan or closing a credit card. While these seem like good things, they can damage your credit. No, it doesn’t make sense, but just trust me on this. I paid off my student loans early and dropped my credit score 18 points
• Not paying your rent or getting evicted.
So, what can you do to avoid these traps for the unwary? Well, try to pay your bills on time. Do not ignore that annoying parking ticket. Most importantly, review your credit reports frequently to make sure they are accurate and dispute any inaccurate information. I wish you all peace, love and a score in the mid-800s.
