Credit can be a difficult concept to wrap your head around. It serves as a trust-building mechanism that gives potential creditors and lenders an idea of your money management skills. In an effort to build credit, many consumers do what they deem most appropriate to achieve that goal. To some, that means having a limited number of credit accounts and using them sparingly, while others believe using their credit as much as possible is more efficient.
With such a keen focus on improving their credit, many fail to realize events or actions that can hurt their credit score. Take note of these top three unexpected events that can damage your credit.
Each time you apply for credit, your credit score takes a hit, and it stays on your credit report for two years. Not all inquiries damage your score; soft inquiries do not affect your credit, but hard inquiries do and are more common. Typical instances that permit a hard inquiry include:
- Renting a vehicle
- Opening a cell phone account
- Opening a bank account
- Renting an apartment
- Requesting a loan
Closing Old Credit Accounts
Individuals who believe they benefit from having limited lines of credit are those who commonly close old accounts. The rationalization of the matter may seem appropriate, but it’s crucial to note that every open line of credit serves as an opportunity to improve your score. Potential lenders want to see that you can manage multiple credit accounts and have them all in good standing. Keeping your credit account open after you pay it off and maintaining a low balance that you pay in full monthly is the best way to improve your credit score.
Not Using Your Credit
Refusing to use your credit is just as bad as not having any credit. Your credit utilization rate is a calculation of your balance on all of your accounts divided by the total credit limits. The ideal utilization rate is 30% and below. If your utilization rate is 15% or below, it may not be enough of a credit history for potential lenders to assess. The key is to find that balance where you are regularly using your credit, but not to the point where you are getting close to your limit.
If your credit card debt is in collections, trust Heather Benveniste with Benveniste Law Offices to put an end to the relentless collection calls and avoid bankruptcy. Heather is an Illinois debt relief attorney who spent seven years as a debt collection attorney and fully understands how to negotiate a fair debt settlement agreement. Contact us today for a free case evaluation.