Thursday, May 29, 2008

did you know that THIS could effect your credit score?

We hate owing anyone anything - except love. Unfortunately, due to some unexpected medical/dental expense that was NOT covered by our insurance plan, we acquired debt on credit cards.

Money and how we steward it matters. And, for the past year, Michael and I have been working (except for a minor detour) the Dave Ramsey Zero-Debt Plan.

We've been finding little creative ways to cut back so we can sink the credit card debt. Taking advantage of Consumer World's Price Checker is one way to save money and using coupons can be another. And here's another with some great tips. Stephanie, at Keeper of the Home, has a great post on her creative ways.

Something else we've done is us all zero % credit cards. The idea is to make our assets work for us. Doing that can be a good thing. But, I just read this article that describes the "dirty little tricks" the credit card companies do.

Cutting up the cards and closing out the paid accounts has also been part of our plan until I read this today. It's an excellent article by Money and Finance that lists out the "little-known" things that can hurt your credit score."

The article begins with, "You already know that the higher your credit score the better. And you probably know the basics for keeping your score high -- pay your bills on time, don’t carry too much credit card debt, etc. But you might be surprised at some little-known factors that can do some serious damage to your score."

Hmmm . . . .

Here's the facts!

Little-Known Factor No. 1
Parking Tickets And Library Fines

Yup, that $3.45 late fee from the library can single-handedly knock down your credit score. More and more local governments are reporting unpaid parking tickets, library fines and such to collections agencies and that can really hurt your score as you'll see on the next screen.

Little-Known Factor No. 2
Collections, Liens And Judgements

These have a big negative impact on your score, no matter how small the amount. And they hurt for a long time. Even if you pay off a collection, it stays on your report for seven long years -- tax liens for 15. Don't let that happen. Your payment history counts for a whopping 35% of your score, so take care of any outstanding fines, and work with creditors to avoid your debt being turned over to collections in the first place.

Little-Known Factor No. 3

Being Responsible

It's crazy, we know, but in credit score land, you are punished for being responsible with your money. It can actually hurt your score if you pay off your balance in full each month or simply don't charge things on credit. Depending on the way your score is calculated (different agencies use different formulas) these can be negative factors since 10% of your score is based on the type of credit you have and 35% is based on your payment history. That doesn’t mean you should stop paying off your balance or start charging everything!

Little-Known Factor No. 4
Shopping for a Loan

If you are shopping for the best rate on a mortgage or car loan, be sure to do all your comparison shopping in a short period of time. Every time someone looks at your credit rating at your request, it counts as an "inquiry" and stays on your report for two years. Too many inquiries lowers your score because it looks like you are about to open lots of new lines of credit. But if you complete your comparison shopping in a 14 day period, it will count as just one inquiry.

Little-Known Factor No. 5
Unpaid or Late Utility Bills

It used to be that utility companies only reported seriously delinquent accounts to the credit bureaus, but many are now reporting late or missed payments just like lenders do. Plus, utilities -- including your electric, gas or phone company -- are much quicker to turn late accounts over to collections agencies. If you are behind or can't pay, contact your utility and work out a plan before that happens.

Little-Known Factor No. 6
Consolidating Your Debt Onto a Low Rate Card

If you are carrying balances on several cards, you might be tempted to transfer them to a low interest rate card. You save money, you lower your interest rate ... and you sucker punch your credit score! The percentage of available credit used is a key factor in your score (how much you owe accounts for 30% of your score). By consolidating, you slash the amount of available credit and jack up the percentage of your credit used in one move. Keep your balances to no more than 25-30% of your credit limit.

Little-Known Factor No. 7
Closing Old Credit Card Accounts You Don't Use

You might think that closing lines of credit you aren't using sounds smart, but not so fast! The length of your credit history counts for 15% of your score, so closing older accounts is actually a negative. Plus remember how the percentage of credit used counts against you? Well, closing old accounts with no balances can increase the percentage of available balance you are using -- another no-no.

Little-Known Factor No. 8
Bankruptcy & Foreclosure

It won't come as any surprise that these are the "big kahunas" when it comes to killing your credit score. But what may surprise you is how long they will continue to hurt your score. Bankruptcy stays on your record for 10 years and can easily drop your score 200 points. That means if you are lucky enough to even be able to get a loan, you will pay sky-high interest rates for the privilege.

One That Doesn't Hurt
If you are in over your head and want to see a credit counselor for help, it won't negatively impact your credit score one bit.

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AZ Chica said...

One other thing to keep in mind is that your credit score is used for things other than loans, such as how much you pay in insurance premiums (auto, home, etc). Yep that's right, your credit score is used as one of the factors to determine what premium you will pay.