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7 Things You Didn’t Know Affected Your Credit Score

23 August 2020 No Comment

Around 33% of Americans have a credit score of less than 601, which credit bureaus consider “poor credit.”

Do you fall into this category? If so, would you like to improve your score?

You can improve it by fixing your credit. Before you can begin working on it, you’ll need to learn what affects your credit score. By learning these things, you’ll have a better idea of how to fix it.

If you would like to know what affects your score, continue reading to learn about seven things that affect credit scores that you might not know.

1. Your Credit Utilization Rate

If you are wondering what can affect your credit score, it might help to begin by viewing a credit model. A credit model tells you what affects your score and the percentage of effects each factor has on your score.

As you view these things, you will discover that your credit utilization rate plays a significant role in your score. A credit utilization rate tells how much credit you are using compared to the credit lines you have.

For example, if you have $10,000 limits on your credit cards and owe $6,000 on them, your credit utilization rate is 60%. This rate is high and will negatively affect your score.

One way you can improve your score is by lowering this rate. If you drop your credit utilization rate from 60% to 15%, you will see an increase in your score.

Adding another credit card to your file can also help you increase your score. When you add another card, you increase the amount of available credit. As a result, the credit utilization rate improves.

2. The Accounts You Currently Have

The second thing that you might not know that affects your credit score is the accounts you have. If you currently have no open accounts, such as loans, it can harm your score.

Good credit scores rely on a mixture of credit lines, and you must use these credit lines. If you have old credit cards or loans that you no longer use, they will not help your score.

Therefore, you might be able to improve your score by adding some new credit lines to your report.

For example, you might want to borrow money through a personal loan. By doing this, you add a current account to your report, which could boost your score.

3. Loans You Cosigned

Did you also know that one of the things that can affect your credit score is the loans you cosigned? When you cosign a loan, you might forget about it, unless the person defaults on it.

If you cosigned for someone’s loan, the account would appear on your credit file. If the person is paying the account on time, this payment history can help your score.

When the person makes late payments or skips payments, it can decrease your score.

There is nothing you can do if you are a cosigner, though. The account will remain on your report until it closes and falls off your report after seven to ten years.

4. Applications for Utilities

There are other surprising things that affect your credit score, including applications for utilities. When you apply for utilities, the companies might check your credit.

For example, if you want to switch cellphone carriers, the new carrier will likely check your credit. Another example is when you apply for a new cable TV provider. This provider might also check your credit.

Each time a company checks your credit, it leaves a mark on your report called an inquiry. Inquiries do not have a significant impact on your score, but they do affect it slightly.

Fortunately, most inquiries fall off a credit report after two years. If you want to fix your credit, stop applying for utilities, loans, and credit cards.

5. Unpaid Bills

You might not realize that unpaid bills can also affect your credit score. If you have old, unpaid bills, they can show up on your credit report.

For example, suppose you switched cable TV providers and never paid your final bill for your old service. Even though cable bills don’t show up on credit reports, they will if you don’t pay them.

If you want to raise your credit, you’ll need to pay your old bills or wait for them to drop off your file. Any unpaid debts that appear on your report will lower your score. In most cases, they will not drop off your report for at least seven years.

6. Outstanding Court-Ordered Debts

You might not realize, too, that court-ordered debts can also drag down your score. Some court-ordered debts will appear on your report from the start, while others might not appear unless you default on them.

An example of a court-ordered debt is child support. If you owe child support and do not pay it, the court will send this information to the credit bureaus. If this occurs, it’s posted as a derogatory item, and derogatory items decrease scores.

If you don’t know what is on your credit report, look it up. You can access your file for free in several ways, and you should check it occasionally.

7. IRS Tax Bills You Still Owe

Another thing that can lower your score is unpaid IRS tax bills. Unpaid IRS tax bills are one of the worst debts to have, as the IRS can garnish your wages or place a lien on your house.

If you fail to pay an IRS tax bill anytime in your life, it might appear on your file. If so, you’ll need to pay the full balance to the IRS. Once you do this, they will mark the debt “paid,” which could increase your score.

What Affects Your Credit Score? Lots of Things

Your credit score is the result of many factors relating to your finances. With the right work, you can improve your score in just a few weeks or months.

If you would like to learn more about what affects your credit score, check our blog for more articles on this topic.

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