20 Something Finance 101
Things that Can Affect Your Credit Rating
As fresh 20-somethings taking our first steps into the world of personal freedom, financial responsibility isn’t always our best suit. While in many ways this is a nasty stereotype most young professionals and college graduates face, there is some truth behind the belief. Most 20 something’s in today’s society are facing mounting student loan debt, an abysmal job market, and soaring prices on rent (with too little savings to buy)—there’s a reason financial responsibility is challenging for us. That being said of course, there are numerous things that young professionals can do to improve their financial prospects. Credit ratings and credit scores play a major role in our level of financial responsibility and how far we can get with the money we do earn. Maintaining a healthy credit history and rating is essential. Consider these three unsuspecting things that can negatively affect your credit rate.
Department Store Credit Cards
We’ve all been offered the department store credit cards. You’re in checkout, you’re balance comes up way higher than you were expecting, and the cashier offers you a store credit card for 15 percent off your balance—it’s certainly tempting. Saying no to the store credit card offers really is the best option as far as your credit score goes. Store credit cards almost always carry much higher interest rates than traditional national brand cards. Furthermore, applying for the card at checkout when the cashier asks you is equivalent to a “hard inquiry” on your credit report because it registers as seeking credit for an immediate payment. Of course, opening a store credit card isn’t always going to drop your credit score, but it certainly can. The advice generally suggests avoiding store credit lines. Even if you shop at the stores regularly, the interest rates can counteract the savings and the initial ding to your credit score can be hard to recover from.
Closing a Zero Balance Credit Card
For many of us, closing a line of credit that has a zero balance is a huge relief and is thought of as a positive thing. If you’re struggling to get out of debt and you’re finally able to pay off the entire balance, the natural instinct is to close that card right away. But, this can actually cause some issues for your credit rating. By closing a card with a zero balance, you can throw of your credit utilization rate. The best plan of action for a credit card that you have paid off with a zero balance is to just hold onto it usually. With a zero balance, your credit utilization rate will remain low even with other cards in the mix—that zero balance actually helps your rating just sitting there. Credit ratings are also based on credit history, so have cards that last can be important.
Opening Multiple Accounts
Your credit score considers how many new credit accounts you have in your name. This number is used to determine your score and can actually lower your store if you have several lines of open credit in your name. The assumption by the credit scoring agencies is that if you open several lines of credit, you’re a greater credit list. With more lines of credit it is easier to fall behind on payments, go into debt, and get in over your head. People often open new lines of credit when they are having issues with cash flow and are planning to take on a lot of debt. Try to stick to one or two lines of credit at most. Having a rewards type card and a line of credit with your bank can be a great start towards healthy credit.
Stella Walker is a blogger and freelance writer for www.creditscore.net. She enjoys writing about issues concerning early financial responsibility and smart spending. Stella uses her expert knowledge on the ins and outs of credit scoring to help the everyday consumer. You can reach her in the comments below.