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Jun 21

4 Things That Can Affect Your Credit Score

Reading Time: 3 mins

Many people shy away from learning more about credit scores, as it feels like a very intimidating matter to investigate further. You may think, “I should really check my credit score,” but decide not to because it feels too scary, or you may not like what you find when you do check it. Credit scores can feel overwhelming, but it’s often helpful to think about them as a series of small steps instead of a bunch of larger undertakings.

Learn more about four everyday things that can affect your credit score, positively or negatively, so you can begin taking steps to improve your financial situation.


1. Late Payments

One of the largest factors that can negatively impact your credit score is late payments. When you fail to pay utility bills, car payments, rent, and other expenses in a timely manner, your score is likely to take a dramatic hit. Occasionally missing a payment here and there is generally not a big deal, but making a habit of it can lower your score quickly.

Unfortunately, low credit scores due to late or missed payments can take years to recover from. If you have trouble remembering to pay bills, or having enough funds to do so, take some time to devise a plan to avoid missed or late payments in the future.


2. Taking out a New Loan

Most people will have to take out a new loan at some point in their lives, whether it’s for a car, secondary education, a home, or other big expenses that can’t be paid for outright. Loans aren’t always a bad thing, especially if you can make larger payments than the minimum each month and budget accordingly.

Applying for a loan will result in a hard inquiry, which can somewhat affect your score for about a year, but paying your loan reliably can have tremendous effects on your credit score over time.

Although loans can be potentially helpful for your credit score when handled responsibly, taking out multiple loans at once or failing to pay it back on time can tank your credit score in almost no time at all.


3. Paying off a Loan

Paying off loans feels great mentally, as it frees up some of your income to be used for other purposes. It also means that you no longer have to worry about accruing interest on your loans, and paying off debt is worth celebrating.

Paying off loans may not affect your credit score as you might intuitively think- credit scores can go up slightly, stay the same, or even dip after a loan is paid off depending upon your own unique set of circumstances.

Once you pay off a loan, that account will close on your credit report. Having fewer open accounts can negatively impact your credit score to a slight degree, but that’s usually only temporary. Plus, lenders will still appreciate seeing your ability to successfully pay off debt and may give you a lower interest rate if you need another loan.


4. Having a High Credit Utilization Rate

Another huge factor that can impact your score is how much credit you are using in everyday life. Using too much of the credit you have at your disposal can make it seem as though you are too dependent on your credit, which can make your score dip significantly. Try to use below 30% of the available credit you have at a time, but keeping it below 10% can boost your score even higher.

Credit scores may seem intimidating at first, but learning a little bit more about how they work and what you can do to improve empowers you to take matters into your own hands.


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