If you are looking into buying a house the first step to that process is getting approved for a mortgage. Chances are you have heard the term “credit score” thrown around a few times and you know that several things can cause it to drop. It is thought that as long as you pay your bills on time your credit score will remain fine however, there are some shocking things that can hurt your credit score.
Missing Credit Card Payments on a Business Card
If you own a company credit card for business expenses, you may assume your business activities won’t affect your personal credit score. However, this, unfortunately, isn’t true. As the business owner, you are personally liable for the businesses credit card debt. So if you default on the card, your creditor can report it to the credit card bureaus, which can hurt your credit score.
Co-Signing a Loan
When you co-sign on a loan, you are responsible if the primary borrower defaults on the debt. Basically, it is not much different from applying for your own loan when it comes to your credit.
Failing to Pay Medical Bills
When you default on medical bills, your doctor’s office or hospital will likely outsource it to a debt collection agency. That collector may then decide to notify the credit bureaus that you are overdue on your medical payments.
Not Using Your Credit Cards
Having a credit card is a lot like a balancing act. If you spend too much you can get into trouble, but if you don’t spend enough you could also get into trouble. So if you don’t use your credit card for an extended period of time (normally 6 months) your card issuer might decide to close your account. This would, in turn, lower the average length of your credit history, and damage your credit score.
Opening New Credit Cards
Applying for new credit cards can actually drop your credit score by 5 points. So “the more the merrier” does not apply here. That 5 point drop seems minuscule but it could drop your score just enough to be classified lower and therefore you would not be getting the best interest rate.
Closing Old Credit Cards
If you have several credit cards, you probably use the ones with the best rewards most often. So some of your other cards may be sitting in your wallet collecting dust and you think the best thing to do is close them out. However, in doing so you can hurt your debt-to-credit utilization ratio, which means how much debt you have accumulated on your credit card accounts divided by the credit limit on the sum of your accounts. This ratio comprises 30% of your credit score. By closing a credit card account, you reduce your available credit- making it more difficult to keep your debt-to-credit utilization ratio below 30%.
