Unexpected Factors Affecting Your US Credit Rating

Your credit rating affects life in the United States in many ways—your ability to get a credit card and much more depends on it. But do you really know everything about a credit score? You may have a general idea, such as what a good credit score is. But there are several factors that may surprise you, writes Credit.com.

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1. Payment history

Payment history has a huge impact on your credit score. It accounts for about 35% of the credit rating. Essentially, it is a record of whether you paid your bills on time.

Lenders report your payment activity (good or bad) to the major credit bureaus. One delay is unlikely to hurt your rankings, but multiple delays do. And the later the delay is paid off, the worse. This may be the lack of payments for:

• credit card accounts;
• student loans;
• mortgage loans;
• car loans.

Other types of payments, such as utility bills or a phone bill, usually do not affect your credit score when a late payment is due, but can do so if you are several months behind and the provider directs your debt for collection.

2. Amount of debt

The amount of debt you have to pay back to different accounts is 30% of your credit score. This debt, also called utilization rate, is calculated by comparing how much revolving loan was given to you (aka your credit limit) with how much you used.

For example, if you have one credit card with a $ 200 balance and a $ 1000 credit limit, the loan utilization rate is 20%. It is best to keep overall loan utilization at 30% or less.

3. Credit age or credit history

Credit age affects 15% of your overall score. The lender pays attention to two main things:

• the age of your oldest credit score;
• the average age of your accounts (calculated by adding the age of each account and dividing by the number of existing accounts).

As you might have guessed, the older your accounts, the more impact (with a plus sign) on your rating. For this reason, try not to close your old accounts unless there is a good reason to do so.

4. Combination of accounts

The credit mix affects 10% of your account. This refers to a good mix of revolving accounts and installment accounts. In other words, try to have a good mix of bills such as credit cards and loans.

On the subject: Study: Americans have serious credit rating misconceptions

5. Loan requests

Credit inquiries arise when someone checks your credit, and they can be soft or hard. Soft inquiries do not affect your credit score. When a lender checks your creditworthiness to find out if you are eligible for a loan, there is a major investigation ahead. This can lower your rating slightly, and complex queries account for about 10% of your credit rating.

Amazing Things That Affect Your Credit Score

Looks pretty simple, right? Pay your car payment and credit card bill on time, keep your old credit accounts open, don't run up balances or apply for a ton of loans, and your credit score will be fine. In reality, everything is a little more complicated. Here's what can negatively impact your score:

1. Error reporting

Inaccurate negative information on your credit reports affects your rating. Problems can arise from data entry errors, identity theft, or other issues. Track your credit report with services such as ExtraCredit or Credit Report Card, or order free credit reports at AnnualCreditReport.com.

If you find an error in one of your credit reports, contact your credit bureau for confirmation. If you have multiple bugs, you need to dispute each one separately with the bug reporting bureau.

2. Parking tickets

Leave a parking ticket unpaid for too long and the city will likely send it out for a refund. Because fees are included in outstanding debts, they can appear on credit reports and harm your credit score.

3. Utility bills

Likewise, unpaid utility bills can negatively impact your credit score when debt is sold to a third-party debt collector who can report it to credit bureaus.

4. Medical bills

Although medical bills are handled differently by credit bureaus, they can still affect your credit if not paid. As a rule, credit bureaus do not immediately report unpaid medical debt as soon as it becomes known. This gives you some time to work with your insurance company and service provider to pay your bills. But eventually this data may appear in your report.

5. Overdue alimony

Unpaid child support is considered debt. The municipality or the agency responsible for collecting payments can report this to the credit bureaus.

6. Repayment of the loan

If you repay your car loan and it is the only installment loan you have, your credit rating will probably suffer too. This is because you can shorten your loan portfolio.

On the subject: Why after moving to the USA you need to actively take out loans: the experience of an immigrant

7. Closing a credit card

If you close your credit card, you will lose part of your credit limit. This can lead to an increase in the loan utilization rate, that is, the credit rating will decrease.

8. Failure to pay rent

Previously, timely lease payments had no effect on credit. And in many cases this has remained the same. But the credit reporting industry tends to include rental data in certain versions of your credit reports. And the industry allows landlords to report payment data.

However, even if the lender or service provider does not review this data, a missed rent could result in the transfer of the case to the collectors. And the collection agency will certainly report your debt.

9. Old gym membership

Unpaid gym memberships can accumulate, so it is important to cancel what you no longer use. Do not close or cancel the card you used to pay for your membership. Cancel the membership itself.

10. Bank overdrafts

Checking and savings accounts are not included in traditional credit reports. Even so, if you opt for overdraft protection tied to a line of credit and don't address the surplus problem, you could harm your credit rating.

11. Request for an increase in the credit limit

When you ask your issuer to change the terms and conditions associated with a credit card, they will most likely check your credit to see if your current situation supports the change. This can lead to serious requests for your credit report.

However, if the credit limit is increased, the small damage caused by the request can be easily mitigated by improving the credit utilization rate, so there are times when asking for an increase is worth it.

12. Opening a certificate of deposit

A certificate of deposit (CD) is a savings account. Well, can opening it affect your credit? Surprisingly, not all, but some financial institutions do check your credit carefully when you open a new CD.

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