The Factors That Affect Your Credit Score

Understanding credit scores

How is your credit score hurt
and how to boost it back

What Hurts Your Credit Score and Affects It Negatively?

Your credit score tells lenders just how safe a bet you are. When considering you for a loan, they take a detailed look at your credit history. If you have a long track record of responsibility, that helps. There are a lot of factors that go into compiling a credit report, some positive and some negative. This article will accentuate the negative! Here are factors that can hurt your credit score.

Failing to Pay What You Need to Pay and on Time

Topping the list of credit score damaging factors is the failure to meet your financial obligations. Depending on the seriousness of the offense, your score will be impacted by failing to pay on time and in full. The worst-case scenario is missing so many payments that the credit card company blocks your card. This is a big red X on your credit report, but any missed payment or late payment will have a negative impact on your score.

Personal bankruptcy severely hurts credit scores, sometimes to the tune of several hundred points. It's nothing personal, it just tells the lenders that you are, at present, not a good risk. Debt reduction and renegotiation also hurt credit score, but only about half as much as bankruptcy. With debt settlement and renegotiation, you at least are demonstrating responsibility by paying whatever you can.

Amount of Credit Available

The best scenario for a credit score boost would be having a line of credit available, and only using a small portion of it. For example, if you have three credit cards with high limits, but you pay them in full each month, you will get a boost from this. It proves your responsibility and ability to borrow significantly with high probability of repayment. That will improve your credit.

Having a lot of available credit, but being close to maxing out on it will dim your credit horizon. Similarly, having only a small amount of credit available, even if you are not maxed out, will somewhat lower your credit score. It won't hurt your credit score nearly as much as a bankruptcy or a delinquency, but there is some effect.

Your Credit History

If you had the same old trusty credit card since college, and you went to college when Ronald Reagan was president, that's good. A long track record of financial responsibility really helps your score.

But if you close that old card and start using the new one that you got last year, you will lose that bonus. Your credit history is only as old as your oldest credit card. The less history there is, the less advantage to your credit score. Taken together, having two or three credit cards for a long time, and keeping up with them, is the best way to be.

Hard Credit Score Pulls

Each time you apply for a loan, the lending institution does what's called a "hard pull" look at your credit report. Every hard pull can knock points off your score, because it may indicate you are going deeper into debt. The more you owe, the less reliable you become going forward. A hard pull is only marked on your credit report when it is initiated by you seeking a new loan or line of credit. The less of these you do, the better.

What about shopping for a loan? Generally that's not a problem, because if you are looking for a mortgage, for example, and three or four different lenders pull your credit score, it counts as only one hard pull. You certainly should shop around for a loan. If, however, you do it every three months, that will be a negative.