USEFS: Money Management Tips | Four things that can hurt your credit score
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One of the best and smartest things you can do when embarking on a debt reduction program is to regularly check your credit score. After all, you can’t effectively manage a debt reduction program without knowing where you are now and where you want to be.
You might be surprised to see what your credit report shows. Perhaps you think that since embarking on your debt management program you have been diligent in paying debt and you expect your credit score and your credit reports to reflect this. There are, however, some surprising things that can negatively impact your score.
1. High debt-to-credit limit ratios
Ideally, financial experts say that you should have a 10 percent debt-to-credit limit ratio, but many of us have much more. Debt-to-credit limit ratios are determine by a formula that compares the amount of credit you have available to you from one creditor to how much credit you have used. If, say, you have a $5,000 limit and a $1,000 balance, you have a ratio of 20 percent.
Since for many people keeping the ratio that low might be difficult, experts say that you can go as high as 40 percent, but that’s the high end. More than that and you risk a credit score hit.
2. Late payments
You might not think much of your occasional late payment, but your creditor has a different way of looking at it. Your delinquent payments can account for as much as 35 percent of your credit score.
3. Inactive accounts
If you have a credit card that you have never used or that you thought you closed, this can create an unexpected hit.
4. Many inquiries
“Hard” inquiries, in particular, are requests by potential lenders to look at your credit report. Hard inquiries are those that happen when you request new credit. These show on your credit report and too many of them can make it look to lenders like you are running around town trying to rack up new credit, which can ultimately damage your credit score.
There is no exact science to credit scores, but there are some things you can avoid if you want to keep that score high as well as some things you can avoid doing. Do you have questions about other things that can hurt your credit score? Call us now and speak to a live person at 1-888-359-7755, or find us online at www.usefs.com.
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