Your credit score affects many different things, from where you can rent a property to how much you’ll pay if you get a mortgage or a car loan. So it’s pretty important to try to make sure your score is as high as possible.
Unfortunately, you may actually be hurting your credit score and not even know it. Here are three unexpected factors that can affect it, so make sure you’re aware of them so you can do everything possible to try to earn great credit.
1. Not checking your credit report for errors
Did you know that mistakes on credit reports are pretty common?
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As many as 1 in 4 consumers were able to spot errors on their credit report that could potentially affect their credit scores, according to FTC research. And 1 in 10 consumers saw their credit scores change after they notified credit reporting agencies and had an error corrected. In a small number of cases (1 in 250 consumers), the consumers saw their scores go up by more than 100 points after they got an error corrected.
You don’t want your credit, or ability to qualify for credit cards or loans, to be impacted by data that doesn’t belong on your report. To make sure that doesn’t happen, visit AnnualCreditReport.com regularly (at least once every few months or so) to take a look at your credit reports at no cost. If you spot an error, you can notify Equifax, Experian, and TransUnion and work on getting it corrected (learn how in this guide to fixing credit report errors).
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2. Not paying attention to when your balance is reported
There’s another common mistake many people don’t know about. It has to do with when you pay your balance relative to when your credit card company reports your balance.
See, credit utilization ratio (or the amount of credit used relative to credit available), is a very important factor in your credit score. It accounts for 30% of your FICO® Score and a lower ratio is better than a higher one.
Now, if you’re paying off your balance in full, you might assume you’re good on this factor. But the problem is, your card issuer doesn’t necessarily report what your balance is right after you make a payment. And this could lead to a higher balance being reported.
Say, for example, you have a $1,000 credit line and you charge $800 worth of purchases, but you pay it off every month. If the card issuer reports your $800 balance before you repay the card the next day, you look like you have an 80% utilization ratio — well above the maximum 30% necessary to avoid hurting your score.
To make sure you don’t get a lower credit score because your payment date doesn’t line up well with when your balance is reported, ask your card issuer when exactly it reports the balance. You can also figure this out by looking at what amount is reported on your card and checking your credit card statement to see when your balance lined up with that amount.
Try to make your full payment before the time your creditor reports, so your reported balance is very low and your score gets a boost.
3. Not having a good mix of different kinds of credit
Finally, not having a mix of different kinds of credit can also hurt your score. If you just have credit cards, for example, this could result in a lower score since you don’t have any installment loans (like personal loans, auto loans, or a mortgage). Installment loans show that you can be responsible when you borrow over time and repay the debt on a set schedule.
Your credit mix accounts for 10% of your FICO® Score and it’s a good idea to try to have a few different kinds of loans. You could, for example, take out a car loan even if you have the cash to buy, and then just pay off the loan after a month or two so you have that different type of credit on your report. Note that you don’t want to get stuck with a lot of interest just to get a slight bump in your score, so be careful how you do this and don’t borrow too much for too long if you don’t really need to.
The good news is, now you understand these ways you could potentially hurt your credit score and impact your personal finances. You can make sure to do all you can to avoid inadvertently ending up with lower credit that makes you seem less attractive to creditors and companies you do business with.
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