Credit Scores and Credit Monitoring
What to Do About Bad Credit
There are some financial transactions you undertake in your daily life that do not affect your credit score – whether positively or negatively. Here are 10 activities you don’t need to worry about impacting your credit score.
1. Bank Account Overdrafts
Overdrawing your bank account can cost you plenty, especially if you have several overdrafts in a short period of time. Fortunately, these overdrafts will not affect your credit score as long as you settle them before they go to collections.
However, if your account remains overdrawn for several weeks and your bank sends your account to a debt collection agency, your credit score will be affected. This is due to the debt collection resulting from the overdraft, not the overdraft itself. The same applies to closing a bank account.
2. Your Income
Information about your employer may be listed on your credit report, but your actual income is not. Lenders and creditors also use your income to decide whether to approve your application and how much you can repay. However, having a high or low salary does not directly affect your credit score. For example, a high salary will not increase your credit score, and a low salary will not decrease your credit score.
Your salary may affect how you pay your bills, and your payment history is included in your credit score.
3. Insurance Payments
Insurance companies check your credit score to decide whether to insure you and to calculate your insurance premiums. Although they use your credit score to make decisions about you, they do not report your timely or untimely payments to the credit bureaus, so insurance payments will not affect your credit score.
If you miss several insurance payments, your insurance company is likely to cancel your policy rather than send an unpaid balance to collections.
4. Child Support and Alimony
Typically, child support and alimony payments do not affect your credit score unless you fall behind on payments and a debt collection agency has to get involved. In that case, your credit score could drop significantly. Not only that, but you could face arrest and lawsuits for missed payments.
5. Utility and Mobile Phone Payments
Like insurance companies, many utility companies and mobile phone providers check your credit score before extending service. However, these companies do not regularly report your payment information to credit bureaus. Therefore, your credit score will not be affected by timely payments on utility or mobile phone bills. However, if your account becomes delinquent, it may be sent to a debt collection agency that will list the account on your credit report, resulting in a lower credit score.
6. Rent Payments
In most cases, paying rent on time will not help raise your credit score. In fact, your credit score will ignore your rent line item even if it’s included in your credit report. However, if you are late on your rent, it could lead to eviction, which will affect your credit score and your ability to rent or obtain credit cards and loans in the future.
There is an exception: some landlords may report rent payments to Experian RentBureau. In these cases, rent payments can help to raise your credit score with Experian.
7.
Checking Your Credit Score
You can check your credit report or credit score as often as you like and it will not lower your credit score by a single point as long as you check it through a reliable source such as AnnualCreditReport.com, credit bureaus, FICO, or a legitimate third party. However, if a lender checks your credit score, it will show up as a hard inquiry, which will affect your credit score in the same way as an inquiry for a new application.
8. Your Interest Rate
Your credit score affects your interest rate, not the other way around. Therefore, having high-interest rates on credit cards and loans will not affect your credit score. And low-interest rates will not improve your credit score. But there may be a relationship between credit scores and interest rates as lenders typically offer better rates to borrowers with the best credit scores.
9. Credit Counseling
One of the myths about credit counseling is that it harms your credit score just as much as filing for Chapter 13 bankruptcy. This is not true. Although credit counseling may appear on your credit report, it will not affect your credit score. If a credit counselor is managing your credit card payments, you must ensure that the creditor receives your payments on time. Late payments will affect your credit score even if they come from a credit counselor.
10. Your Age
Your age does not factor into your credit score calculation, but there may be a correlation between your age and your credit score. If you are young, you may not have much experience managing credit, which may limit your credit score. An older person with a longer credit history has had time to recover from early credit mistakes in their credit report, so they may have a higher credit score.
Frequently Asked Questions (FAQs)
What is a good credit score?
A “good” credit score ranges from 620 to 659. Above that is “better” (from 600 to 719) and “super prime” (at least 720) credit scores. Once your credit score falls below 620, you are considered a “subprime” borrower. You are considered a “deep subprime” borrower once your score drops below 580.
How can you improve your credit score?
Improving your credit score requires responsible long-term debt management. Unless your credit report has an error you can dispute, your credit score will not rise quickly overnight. You will need to keep debt low and make payments on time. The longer you do this, the higher your credit score will be.
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Sources:
Experian. “Does An Overdraft Affect Your Credit Score?”
MyFico. “What’s Not In My FICO Score.”
MyFico. “What’s in my FICO Scores?”
Experian. “Does My Car Insurance Policy Affect My Credit Score?”
Experian. “Can Utility Bills Appear on Your Credit Report?”
Experian. “How Does an Eviction Affect Your Credit?”
Equifax. “Understanding Hard Inquiries on Your Credit Report.”
Equifax. “7 Things That Won’t Hurt Your Credit Scores.”
Consumer Financial Protection Bureau. “Borrower Risk Profiles.”
Source: https://www.thebalancemoney.com/protect-your-credit-score-960516
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