A good financial history, often marked by one’s credit score, can open up numerous opportunities, while a bad one can turn them away. Poor credit scores often stand in the way of people getting their dream house, car, even job! Case in point: in ‘What to Know When Taking Out a Mortgage’, our first recommendation is to know your credit standing because a low score can result in higher interest rates from lenders. It can also be cause for rejection, so you might not be able to get a loan at all. This also applies to other loans you might want to take out in the future, like car loans or personal loans.
To maintain a good score, you need to be aware of all the factors that can affect your credit. Here are five things that you need to be on the lookout for!
1. Connecting Yourself to a Misused Business Credit Card
Business credit cards are applicable for individuals who are opening businesses, reselling products, and offering services. Though these cards are for professional use, CNBC notes that they can also impact your personal credit score.
You will be held responsible for the history of your business credit card, especially if you are the primary account holder. Starting from the application, financial institutions may run hard inquiries on your credit score if your business doesn’t have an established credit history yet. This also means that any late payments and unpaid debts under your business’s name can reflect in your personal financial history.
2. Requesting for Loans or Higher Credit Limits
You need a good credit score to get good rates for a mortgage, house loan, student loan, and even to increase your credit limits. However, a post on hard versus soft credit inquiries by Petal states that hard inquiries are conducted every time you request for these loans or adjustments—and this will be reflected in your credit score for up to two years.
A hard inquiry is conducted by financial institutions, companies, and even landlords to determine whether you’re a lending risk or not. To avoid any consequences, you can shop for loans within a 14-day window so that all the inquiries of various lenders will be contained as one. Moreover, try to shop for loans only when you really need them.
3. Having an Unbalanced Credit Utilization Rate
Credit cards are highly beneficial for many adults, since these can minimize payment limitations and even provide additional perks. However, you can unknowingly decrease your credit score by going under or over the optimal utilization rate.
According to Business Insider, most creditors prefer that you use around 30% of your credit card’s utilization rate. If you go over that percentage, however, they may be forced to lower your credit score and your credit card limit.
4. Failing to Pay Your Bills on Time
It’s common knowledge that late payments can make your credit score sink significantly. In fact, US News warns that your failure to pay your bills on time can make it drop by as much as 100 points! If you missed a credit card payment or a bill for a loan, then you’d have to deal with late fees and higher interest rates, as well.
However, most aren’t aware that this rule is still relevant for other kinds of bills. For instance, unpaid medical bills will be reported to debt collection agencies after a grace period. Late payments for phone plans will also be sent to collections and reflected on your credit score.
5. Closing a Credit Card
You may be inclined to close your credit card, especially if you aren’t using it anymore. Though this action does not impact your credit history, it may have profound effects on your credit score.
The age of your accounts is factored into your credit score, so a long-standing credit card is vital in maintaining a good rating. Furthermore, it may be harder to maintain a good utilization rate once you lose the available credit limit from a closed card.
Your credit score can improve your life by giving you access to a better house, a new car, and even a greater job opportunity! By paying attention to all the factors that affect it, you can maintain a good score.
