Your credit score is like a financial report card, and like a report card you are usually not the only one to see it. Applying for loans, mortgages, bank accounts, and new cars loans all require a credit check. There is much more that goes into building a good credit score than just paying your bills on time. To you understand just what does build and destroy a credit score, I have compiled the following list.
- Accounts
Depending on the type of accounts you hold, and how many, your credit could gain or loose points. Generally, a good mix of account types makes for good credit. Having a mortgage, car loan, and a couple credit cards in good standing should leave you with a lot of valuable credit points. - Payment History
Your payment history on loans and credit cards can affect your credit for years to come. Making payments on time will add points to your credit credit score. On the other hand, missing payments often can result in the loss up to 100 points! - Owed Debt
If you have debt then it may drop your credit score. However, some debt is actually good for your credit score. Having credit cards and mortgages, can help build your credit if you regularly make your payments. However, if you owe a lot of debt to many different lenders, it could potentially destroy your credit. A good rule of thumb is to keep your loans in check, and never borrow more than you can pay off.
- Credit Age
If in good standing, having credit for a long time should improve your credit score. Try keeping accounts open for a long time and making payments regularly and on time. If you are new to the credit game and are just starting to build your score, then you want to make sure and open an account that you know you will be able to keep. - Loan History
Taking out a loan does not necessarily take down your credit score. Actually, taking out a loan for something like a car could help your credit. However, late payments or very low payments and high interest could get you in to trouble and hurt your credit score. Always think of your loan in the long term before you take one out. - Credit Checks
You may be surprised to know that having someone check your credit (i.e. a new employer, landlord, or lender) will drop it by few points. This is frustrating, but an unavoidable fact. To help prevent yourself from missing out on too many points, try to reduce to the number of times you have your credit checked, and only have it done when absolutely necessary. Read More --> Hard Pull vs Soft Pull: What's the Difference? - Unpaid Parking or Library Fines
Although they may seem unrelated to your credit, having unpaid parking violations, or library fines can negatively affect your credit score. It is always a good idea to pay off any debt, regardless of how small or seemingly unrelated. - New Credit
Getting too many credit cards is a sure way to hurt your credit score, no matter if you make timely payments or not. In this case, consolidating some cards could help you in the future. While consolidation will normally drop your score by a few points, building credit will be easier from then on. - Collections History
Having a history of being given over to collections does not look pretty on a credit report. If you are looking to get a big loan or buy a house, try to take care of any situations involving a collections agency first. Over time, the scar of being put in collections should start to fade, but not until you pay off the debt and start rebuilding your points. - Bankruptcy
Filing bankruptcy is never fun to go through, and rarely good for your credit. If you have or need to file bankruptcy, be prepared for a plummet in your score. There are some options to help you avoid bankruptcy all together. Bankruptcy should only ever be used a s a last resort. However, bankruptcy can be the best option for someone who realistically has no way of ever paying their debt down.
Does your Credit Report Card have room for improvement?
Now that you understand what can help and hurt your credit score, what does your credit report card look like? If you are struggling to get your credit "GPA" up, you might need a tutor. The Solutions Specialist at Debt Relief can help you work though your credit issues and find a solution tht best fits your needs.
