Your credit scores are created by using the information that is contained on your three credit reports, which are compiled by Equifax, Transunion and Experian. There are also different types of credit scoring models that are used by various lenders. For example, there are various types of FICO scoring models. VantageScore is also becoming more popular with lenders. Despite the diversity of scoring systems, there are still common factors that can hurt or improve your scores.
- Making late payments. Creditors could report you to the three credit bureaus if you do not make timely payments on your debt obligations. This may occur after 30, 60, 90 or 120 days. Depending on the creditor, you may not be reported for six or more months. Late payments can seriously harm your credit scores.
- Overextending your credit. Your credit scores can also be hurt if take out too many lines of credit, especially in a short period of time. The negative effects are especially bad if you are opening multiple credit cards. Lenders run a hard inquiry of your credit each time you apply for a card. Hard inquiries can lower your credit scores.
- Closing lines of credit. Your credit scores could also take a hit if you close lines of credit. This may occur because closing accounts could negatively alter your debt-to-credit ratio.
- Cosigning loans. You should be cautious about cosigning loans for friends or family members. Not only could your credit scores suffer, but you could also become liable for the debts. For example, if you cosigned a private student loan, you may still be on the hook even if the primary debtor passes away.
- Maxing out your credit cards. You should avoid spending the full balance on your credit cards. A good rule of thumb is to utilize no more than 30 percent of your available credit.
- Failing to use credit. Credit utilization is factored into your three scores. Therefore, your scores could decrease or stay low if you fail to utilize any type of credit.
- Failing to check your reports. You can pull your three credit reports for free once per year by using annualcreditreport.com. Remember, your credit scores are determined by the information in your reports. You should pull your reports once per year to look for mistakes or signs of identity theft.
Can I Improve My Credit Score?
Your credit scores have a significant effect on your life. For instance, they may determine which types of jobs you can get or where you can live. Credit scores determine whether you receive favorable loan terms, such as low interest rates.
Even if your credit scores are currently lower than you would like, it is important to remember that you always have room for improvement. Credit scores are not permanent. Make timely payments and use credit responsibly to improve your score. Lenders are looking for consistency.
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