How Various Financial Transactions Affect Your Credit Score

Sometimes managing your credit and keeping track of your credit rating can be like playing chess. While the impact of certain financial steps on creditworthiness may seem mysterious, there are some general guidelines as to what can happen to your credit rating in certain circumstances. Edition MSN told how various transactions affect the credit history.

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Hard credit request

Credit rating downgrade: five points or less

A tough credit investigation usually occurs when you voluntarily apply for a new form of loan and the lender asks for your credit report to determine your ability to pay. This could result in a rating downgrade of five or less, at least in the short term.

If, for example, you are applying for a mortgage and cannot avoid repeated tough inquiries from potential lenders, Experian advises to do them within one period of 14 to 45 days.

As a rule, you will not be penalized for multiple complex requests if they are completed during this period and belong to the same type of loan.

Soft credit request

Credit rating downgrade: No

A soft credit rating request can happen for a variety of reasons, with or without your permission. This includes when: you are checking your credit rating; the company is ready to offer you preliminary approval of the promotional offer; a company with which you already have a credit relationship wants to confirm specific information about you.

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Late payment

Credit rating downgrade: depends on the circumstances

Late payment data is usually not reported to credit agencies (CRAs) such as Experian, Equifax, and TransUnion until they are at least 30 days out of date or one complete billing cycle.

Therefore, if you make a payment a few days after the due date, this usually does not affect your credit rating, although you may need to pay a late fee.

Your credit score may drop after your payment is 30+ days overdue. But here, too, it all depends on a number of different factors, in particular your current credit rating, the actual delay in payment, the number of late payments you have had, and the length of your credit history.

How various factors in the event of a late payment can affect your credit rating:

Example 1:

• Starting credit rating: 736
• After 30 days delay in payment: 685 to 705
• Fall: 31 to 51 points
• After 90 days of delay in payment: 655 to 675
• Fall: 61 to 81 points

Example 2:

• Starting credit rating: 607
• After 30 days of delay in payment: 570 to 590
• Fall: 17 to 37 points
• After 90 days of delay in payment: 560 to 580
• Fall: 27 to 47 points

Example 3:

• Starting credit rating: 669
• After 30 days of delay in payment: 625 to 645
• Fall: 24 to 44 points
• After 90 days of delay in payment: 590 to 610
• Fall: 59 to 79 points

Example 4:

• Starting credit rating: 710
• After 30 days delay in payment: 645 to 665
• Fall: 45 to 65 points
• After 90 days of delay in payment: 530 to 550
• Fall: 160 to 180 points

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Example 5:

• Starting credit rating: 793
• After 30 days of delay in payment: 710 to 730
• Fall: 63 to 83 points
• After 90 days of delay in payment: 660 to 680
• Fall: 113 to 133 points

You have a loan sent to collectors

Credit rating downgrade: potentially over 100 points

If you have an account that the original lender sold to collectors after not receiving payment for some time (usually more than 120 days), the impact on your credit rating can be quite significant. However, as with late payments, the exact drop in your credit rating will depend on many other factors, such as your current rating and the number of other negative marks on your credit report. In addition, the impact of credit on collectors diminishes over time and typically diminishes after about seven years.

You have filed for bankruptcy

Credit rating downgrade: often 200+ points

Bankruptcy can lead to a sharp drop in your credit rating. How big this drop is also depends on many factors, including but not limited to the condition of your credit rating prior to filing, how long it has been since you declared bankruptcy, and what type of bankruptcy you have filed for.

Bankruptcy can remain on your credit report for approximately 10 years from the date you filed your application. The impact of bankruptcy on your credit rating tends to diminish over time, even if the bankruptcy is still listed on your credit report.

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As with late payments, filing for bankruptcy can result in a larger credit rating downgrade for those with a higher rating.

You are applying for a new credit account or loan

Credit rating downgrade: depends on the circumstances

There are several factors to consider that can increase or decrease your rankings, and by how much.

1. Average loan age

Impact: no or negative (assuming you already have other credit accounts).

The length of your credit history, calculated as the average age of all your credit accounts (the average time that all your credit accounts were opened), is 15% of your credit rating. In this case, the older your loans are, the more responsible you seem to potential lenders.

Bad news: if you open your first credit account it will almost certainly lower your credit rating.

2. Variety of loans

Impact: potentially positive

Another factor in calculating your credit score is your mix of credit scores. If you have a diverse mix of credit accounts (such as credit cards, auto loans and a mortgage), a potential lender may consider you more qualified for new credit.

So, if the new loan you are applying for makes your credit mix more diversified, it could potentially have a positive effect on your credit rating.

3. The number of complex queries you had

Impact: negative

To open a new credit account in your name, the lender usually has to conduct a thorough investigation of your rating. As mentioned earlier, this can result in a credit rating downgrade by about five points, give or take.

4. Level of loan utilization

Impact: potentially positive

Credit utilization is the total amount of credit you are using at a given time compared to the total amount available to you. The concept of using credit applies to all of your revolving credit accounts, such as credit cards.

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Opening a new revolving credit account can potentially have a positive impact on your credit score by increasing the total available loan amount, which will lower your credit utilization rate.

5. General condition of the loan

Impact: potentially positive or negative

Again, the overall condition of your credit may indicate how opening a new line of credit might affect your credit rating. If you have a good reputation as a borrower, a new line of credit will only result in a slight temporary decrease in your credit rating.

Increasing the level of loan utilization

Credit rating downgrade: depends on the circumstances

The use of credit is considered a key factor in determining your credit rating. As a general rule, it is recommended that you keep your loan utilization at 30% or less, meaning you should ideally not use more than 30% of the money that is available to you. But what happens if you exceed this limit?

One important factor to note: According to TransUnion, lenders typically provide account information once a month or once every 45 days. However, credit bureaus do not require them to provide this information by a specific date, so your credit report and credit score may change frequently. For example, if you paid off a large credit card debt, your credit score may still reflect high credit utilization—depending on when you made the payment and when your lender reported the new balance.

Other factors are likely to play a role as well. In particular, how high the level of loan utilization really is. For example, a loan utilization rate of 90% can lead to a more dramatic decrease in the credit rating than a 35% utilization rate. In addition, your current credit rating can also play a role in how much of the above will affect it.

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