If you are like many people, you believe that as long as your credit card bill and other recurring debts are paid on time every month, you must have a good credit score. Right?
Unfortunately, earning and maintaining a good credit score is not nearly as easy as you might think. Although topicality and credit use play a major role in determining your score, there are a number of other factors that play a role – and some are not so obvious. View some of the issues below and see if you can improve your score.
Few known factors that influence your credit score
1. Municipal debts
If you skip your credit card, car loan or mortgage payment, you would expect your creditor to report this to the agencies. But these are not the only accounts that can be reported. Depending on where you live, your city government can inform the credit bureaus about unpaid parking tickets, unpaid city taxes, and even fines for the library. Indeed, these small, seemingly unimportant debts can lower your credit score and prevent loan approvals.
To keep your credit in top condition, you must consider all your debts as a priority. If you do not have enough money to pay a city debt, call your local government to prepare a payment plan.
2. Have no current loans
If you have several credit cards in your name but no loans, your credit may suffer. Credit scoring systems reward consumers who diversify and have different types of accounts in their name. Moreover, revolving debts, including credit cards, are assessed less favorably than loans. For example, a consumer with a few credit cards, a mortgage loan, and a car loan probably has Speedy Loan a higher Credit score than a consumer who has only a few credit cards, despite the fact that the formerly said Speedy Loan has more debts.
This does not mean that you have to apply for a number of loans to improve your score. However, if you are considering buying a new car or taking out a student loan, you can give your credit score a boost as long as you can afford the payments.
3. Pay in cash only
If you see yourself as a smart consumer, you are probably Speedy Loan proud that you are taking wise financial steps. One of these smart moves can only be to take out a credit card if it is absolutely necessary, as this is an effective way to prevent debts. However, if you think that this move will benefit your credit, you are unfortunately mistaken.
In fact, not using your credit card is the fastest way to reach a credit score level. After six months of inactivity, your credit card company may stop reporting to the credit bureaus, or worse, cancel your account completely. Both promotions can lower your score. To prevent this, you need to dust off your credit cards and make small purchases every few months. You could make a point to pay for gas, groceries or dinner in a restaurant, for example, for a week every other month. Pay the balance in full only when or before you receive the statement.
4. Close accounts
Settling your balance on your credit card is an important milestone. If you close a credit card account as soon as you reach that goal, you may feel liberated. However, breaking the ties with your credit card company has no huge benefits.
If you do not understand how credit scoring works, you can accidentally lower your Credit score. While eliminating debts is smart and can push your score to primary status, closing an account has the opposite effect. In fact, it’s worse than not to use your cards. Canceling or closing accounts can reduce the duration of your credit history, which is important because the length of your credit history accounts for 15% of your credit score. Close your oldest accounts and you will lower your credit history by years.
A safe approach is to pay off balances, but keep accounts open. If you think you have too many accounts and you are adamant about closing a few, start with your newest one. And do not close multiple accounts at the same time. Close one, wait a few months and close another.