How Can My Credit Score Be Affected?
In general, a credit score can be a three-digit figure ranging from 300 to 850, indicating how credit-worthy you are. Credit scores are determined by using the information on your credit history, which includes your history of paying bills on time; the current amount of debt you owe; and the period you’ve had open accounts. The higher the number, the better your credit rating. But there’s more to knowing your credit score than just the numbers, especially if you are still learning how to use it properly.
Understanding what affects
your credit score helps you understand why certain decisions may impact it more than others. For example, one decision that will affect your score is opening several credit cards. Each time you apply for one, your credit report shows your history with each credit card and how many successful applications you’ve made. Each time a company pulls your credit record, they also pull your credit limit as well, which may impact your credit score more than other decisions.
Opening too many accounts
can hurt your credit score because your credit score doesn’t consider all of the information available. It considers only the most recent payment history, which is not enough to give an accurate assessment of your actual credit utilization. As soon as your score becomes low, you must start controlling your use of credit and begin to pay everything off as quickly as possible. This will help your credit score to return to normal levels within a few months. If you don’t take this step, your credit score will continue to decline as new credit cards are opened, late payments continue, and you accrue more debt.
Another example of decisions
that generally consider your score differently is opening up new home equity lines of credit. Generally, home equity lines of credit are opened for homeowners who have sufficient income and can qualify for the line. Because these loans are secured by the home itself, they carry a lower interest rate and longer repayment terms. However, there is another way that these same loans can affect your credit score. Because these lines of credit carry a higher interest rate, your credit score will be lower if you have too many on your credit cards or loans.
Experian and Equifax
do not share customer information. Your Experian credit score is based on your file from Experian, while Equifax scores are based on your file from the Equifax database. The differences between these two credit reports can make a huge difference in your overall score. Many consumers mistakenly believe that their Experian scores are the same as Equifax scores when in reality they are usually different by several hundred points. Because these discrepancies between the two credit reports can happen easily, it is important to be aware of them.
Another thing that can affect your credit score negatively
is any accounts that you do not pay back. Late payments or instances where you do not pay back loans that are not paid off can harm your credit score. If you have a lot of open accounts, this will tend to hurt your credit score, even if you are not late on any of your accounts. This is because open accounts typically show as an open account on your financial history report, even if you have not made any payments.