Credit scores are simply a numerical reflection of your current credit and payment patterns. Typically, the higher the score the better the credit. Building solid credit, especially at a young age, is relatively easy to do. Open up a credit account and pay it back on time. Conversely there are things that will lower your credit scores. Here are four of them.
The first and foremost is your payment patterns. Scores will drop precipitously when payments are late. Not late if your payment is due on the 15th and you pay on the 17th, but more than 30 days past the due date. That’s when scores will drop the most and the quickest. Avoiding these late pays will help scores but making payments more than 30 days past the due dates certainly will. They’ll fall even further if a payment is made more than 60 and 90 days late.
The next way your scores can falter looks at the outstanding balances compared to credit lines. If for example a credit card has a $5,000 limit and the balance is say $4,500, scores will fall and your overall credit profile will be damaged. Going over the credit line will cause scores to fall even more. Scores will improve when the balances are kept near one-third of credit lines. For a $10,000 limit then the scores will rise if the balances are approximately $3,000-$4,000. Interestingly, keeping balances at zero won’t actually help scores. The scoring system looks at payment history and if there are no balances there won’t be any payments to observe.
A bankruptcy filing, be it Chapte 13 or 11, will of course hurt scores. Lenders can work around a bankruptcy if it can be shown the bankruptcy was out of the borrower’s control. A situation where there is a divorce and there are disputed credit accounts is perhaps one example. Another would be a death or extended illness in the family.
Finally, credit inquiries can negatively impact scores. There are two types of inquiries, a hard and a soft inquiry. A soft inquiry is when a credit card company takes a peek at your credit profile to see if they want to extend a credit offer. These have no impact as they’re not initiated by you. A hard inquiry however is a different story. A hard inquiry is a direct request by you for a new account. An isolated hard inquiry won’t hurt credit but several such inquiries within a shortened period of time will.