Score Advice

7 Surprising Things That Can Affect Your Credit

Your credit score is one of the most important aspects of your financial life. Good credit makes it easier to qualify for affordable loans, the best credit cards and even lower auto and homeowners insurance rates. It also makes it easier to rent an apartment or home and even get hired for certain jobs.

Protecting your credit score from harm is critical, and you may already be familiar with the traditional advice of paying every bill on time and keeping balances low. In addition to those factors, however, there may be some things that you didn't know can affect your credit. Here are seven of them.

1. Utility Bills

If you're behind on your utility payments, you risk having your utilities turned off, and you may also get dinged on your credit score. It typically won't happen if you've missed just one payment, but if you're so far behind that the utility company has charged off your account or sent it to collections, that can show up on your credit report and get factored into your scores.

Because your payment history is the most important factor in your FICO® Score , the score used most by lenders, it's crucial that you pay all of your bills on time, including utility bills.

Historically, on-time utility payments haven't been included in your FICO® Score, so the only way utility accounts could affect your credit was negatively. But with a service called Experian Boost , that's changed. This free tool allows you to connect the accounts you use to pay utility bills, phone bills and even some streaming services and use your positive payment history to increase your credit score.

2. Requests for a Credit Limit Increase

There are several reasons to request a credit limit increase on your credit card. Not only does it give you more spending power, but it can also improve your credit over time by reducing your credit utilization rate.

But applying for a line increase will likely cause your lender to conduct an underwriting process similar to what's done when you first applied for the credit card. This often includes a credit check to determine whether you're eligible, which can result in a hard inquiry on your credit report.

Individual hard inquiries don't do much damage to your credit, and it's unlikely the addition of a hard inquiry will have a noticeable impact on your creditworthiness. According to FICO, each additional inquiry knocks fewer than five points off your score. But if you've submitted a lot of credit applications recently, adding another inquiry could have a compounding effect and hurt your credit even more.

3. Business Credit Cards

Business credit cards can be a great way for new and seasoned business owners to pay for everyday expenses and take advantage of rewards and benefits. But while the card is in your business's name, it may still impact your personal credit.

This is primarily because most business credit card issuers require a personal guarantee when you apply for an account. In other words, if your business can't repay what it owes, you're personally responsible for paying the debt. If you don't, the card issuer may report the delinquency to the consumer credit bureaus, which can hurt your credit.

What's more, some business credit card issuers actually report all of your account activity to the consumer credit bureaus. Capital One and Discover are two major card issuers that do this.

4. Cosigned Loans

Cosigning a loan for a loved one is a generous act because it can help them qualify for credit they might not have gotten on their own. But it's important to understand that cosigners aren't just lending their good credit for the application—they're also responsible for paying back the loan if the primary borrower can't.

A cosigned loan will show up on your credit report as though you borrowed the money yourself, and if a payment is missed, it can damage credit scores for both borrowers attached to the loan. Also, having the debt on your credit report could increase your debt-to-income ratio, which can make it difficult for you to get approved for credit when you need it.

5. Car Leases

A car lease isn't technically a loan, so you might not think it gets reported to the credit bureaus. After all, your apartment lease doesn't always get reported either.

But leasing companies report the account just like a traditional installment account. So it's crucial that you keep up with your payments. Fortunately, lease payments are typically lower than auto loan payments, so it may be easier to afford if your budget is tight.

6. Having Little Credit Diversity

One thing lenders like to see is that you can successfully manage different types of credit. This means that having a credit card, auto loan, student loans and a mortgage can be better for your credit than just having a couple of credit cards.

This credit mix makes up 10% of your FICO® Score. According to FICO, it likely won't be a deal breaker for lenders if you don't have tons of diversity with your credit accounts. If you're looking to take your score into 800 territory, however, adding a new type of debt to your credit mix can help.

Does this mean you should apply for different types of credit just to boost your credit mix? FICO says no. It's important to weigh the costs of a loan against the benefits of having it. In most cases, it's best to naturally establish a diverse mix of credit over time as you need different forms of financing.

7. Ignoring Your Credit Report

The simple act of checking your credit report doesn't impact your credit score directly. But if you neglect your credit reports, you could miss something that can wreak havoc on your credit score.

For example, if someone steals your personal information and opens a fraudulent credit account in your name, that account will show up on your credit report. If you don't catch it and the account goes delinquent, it can damage your score. Fraudulent accounts can be disputed and removed, but you'll have to first know they're there before you can start the cleanup process on your own.

The same goes for errors on your credit report. While it's uncommon, it is possible for lenders to make a mistake when reporting your account status. In some cases, these errors can have a negative impact on your credit score. So check your credit report regularly for these damaging items and file a dispute if you find something you feel is incorrect.

Track Your Credit Score to Maximize It

Building and maintaining a good credit score can be a lifelong pursuit, and the more proactive you are about developing good credit habits, the easier it will be in the long run. As you work to avoid things that can damage your credit score, it's a good idea to check your credit score often.

Checking your credit score can help you spot potential issues before they do real damage and also help you understand which actions can help improve it.

Experian's credit monitoring service offers free access to your FICO® Score powered by Experian data. You'll also get complimentary access to your Experian credit report, which gets updated every 30 days, plus real-time alerts when changes are made to that report, such as new inquiries and accounts and changes to your personal information.

Keeping track of your score and learning what can and can't hurt it will give you all the information you need to succeed.

How Good Is Your Credit Score?

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