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Suprising Things that May Negatively Affect Your Credit Rating

Posted by rafael on December 18, 2012 in Business Finance

As most everybody knows, missing a credit card payment or filing for bankruptcy are some of the worst ways to affect your credit rating. But there are other, less obvious, things you can do that can also have an adverse effect on your rating. Many of these things appear quite innocent at first, but their effect on your credit score needs to be taken into account if you hope to maintain a healthy credit report. Below are five surprising ways you could be hurting your credit rating.

Closing Credit Cards

There are many ways closing a credit card can adversely, and sometimes unfairly, affect your credit rating. If, for example, you still have a balance owing on that credit card, regardless of whether you’re making your payments on time, your credit limit for that card will show as $0 and thus you’ll be considered over your credit limit. Also, your credit rating is significantly determined by the length of your credit history. Therefore, if you close an older credit card, it will appear that your credit history has been much shorter than it actually is, also affecting your credit score. Finally, even if you don’t have a balance on your credit card and it’s a recent account, closing it can be the wrong decision. This is because by closing those accounts that are at $0, you also decrease the amount of credit you have available to you, thus making it look like you have been utilizing far greater percentage of your credit than you actually have been.

Being Declined for a Credit Card

People who already have a poor, or even just a fair, credit rating will often seek to rebuild their credit score by applying for a new credit card and making payments on it regularly. While this is an excellent way to rebuild your credit score, be careful about which credit cards you apply to. If you are rejected for a credit card, this can adversely affect your credit rating. Many of the credit cards that offer the best rewards and higher limits are only available to those with excellent credit histories. So be sure your credit rating is good enough for the card you want before you even consider applying.

Credit Card

Credit Card

Applying for Multiple Credit Cards at Once

Similarly, if you make multiple applications for loans or credit cards within a short amount of time, your credit rating could be adversely affected. This is because even inquiring into credit affects your credit rating. While making one or two applications is not going to hurt you, be sure to keep your applications to an overall minimum.

Understanding Hard Inquiries and Soft Inquiries

If you want to keep your credit score in good standing, you need to know the difference between hard inquiries and soft inquiries into your credit report. A hard inquiry is when any lender requests your credit report in order to decide whether to lend you credit; a soft inquiry is when somebody requests your credit report without actually intending to lend you credit. The reason this is important is that hard inquiries are quite common, and they do affect your credit score. Car rentals, mobile phone applications, and credit limit increases can all require hard inquiries, and each hard inquiry can drop your credit rating by a couple points.

Unpaid Parking Tickets

Many people think their credit rating is determined exclusively by, well, credit. But there’s more that goes into it than that. If you have a lot of unpaid parking tickets, for example, then your credit rating may be affected. This is especially true if these tickets go into collections, which is becoming more and more common as municipalities try to make up budget shortfalls by going after unpaid fines. Any time a collections agency is pursuing you over any matter, such as unpaid parking tickets, you can be assured that your credit rating has taken a big hit.

Sam Jones, the author, has been looking into credit cards and how credit histories and scores are calculated.

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