Personal Finance and Investing

Your credit score is a vital number that determines how businesses and financial institutions treat you. Everything we do financially has an effect on our score, for good or bad. What surprises many people is how seemingly minor or harmless activities can have a big, negative impact. Described here are how a few can drop your score.

Firstly, the one action that people underestimate the impact of is asking around. Asking for a loan rate gets reported; too many of these will hurt your score. The thing that masks this is the fact that it is so very easy to get quotes online. A simple little form will spit out a rate for you. It is so easy to sit and compare a number of companies. What actually happens is that the program behind the many websites will use your information to make a request for your credit rating. This request tells the credit bureaus that you are looking around. Many inquiries can signal to the bureaus that you might be trying to over extend your self, or you are trying to cover a down fall, or some other negative situation. As a result, inquiries by their lonesome will drop a score. How do you avoid this? The task is to gather as much information without submitting any forms, and then narrow your focus to two, maybe three companies. Then and only then do you make quote requests.

The next seemingly unlikely suspect in lowering a score is the act of closing accounts. I mean, the accounts are sitting unused, why not close them and prevent temptation to over extend oneself? This makes sense financially, but in truth, credit bureaus will most likely lower your score as a result. This is because what makes a good score is evidence that the debtor has a secure, stable and long financial history. Banks only lend money to those likely to pay it back. Closing accounts will not let an account build that trust long enough. If you need to close an account, close those that are youngest.

The third way to hurt your credit, the most surprising in the opinion of many, is to not use credit or get loans. Surprising as it may seem, never having a credit card can hurt an account. The reason ties in with the above, banks want proof of long term stability and maintaining credit over a long period of time. The best way to achieve this is to utilize a credit card, perhaps with a low credit if the worry is getting one’s self into trouble. The card should be used every month, with the balance paid off in full every month.

The thing to realize is that the entire system of credit scores and ratings is tailored to benefit lenders the most, so it is up to the debtor to ensure that the system is kept in line and their credit score is maintained. So long as changes are reported and the card holder is more aware of the impact of their own actions, their credit should not suffer.

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