Your credit score is the most important three-digit number in your financial life. It tells potential lenders how likely you are to pay your debt and tells insurers and credit card issuers whether you’re a safe bet. A high FICO score is an indication that you’re trustworthy and make responsible financial decisions. That’s why it’s important to know what affects your credit score and what doesn’t. Check out these five things that won’t help, but might hurt your credit score.
1 – Choosing debit over credit
You might think it’s more financially responsible choosing debit over credit, so you don’t rack up debt. This can be particularly true if you’re gun shy about debt after completing bankruptcy. But because your debit card is pretty much just a glorified ATM card, it doesn’t show that you know how to use credit responsibly. It just shows you know how to take money out of your checking account. A debit card will not show up on your credit report and so can’t help or hurt your credit score. Credit cards are better for this purpose.
2 – Earning more money
If you earn a high wage or get a fat raise, that’s great, but it’s not displayed on your credit score. Therefore it can't impact your FICO score no matter how big of a rock star you are at your job. However, earning more money can help you better manage your finances, pay your bills on time, and save for a rainy day. These are all signs of financial responsibility. But only paying your bills on time and not maxing out your credit cards will affect your score among these factors.
3 – Saving money
Having money socked away is great for your peace of mind and also to have as a safety net if you experience a cash-need emergency. Saving for retirement is also important, and if you’ve got emergency savings and a 401(k), you’re doing well for yourself. However, all that solid financial planning will not impact your credit score directly. Money in the bank or an IRA is not reported on your credit report and therefore does not affect your score.
4 – Divorcing or marrying
Getting married or divorced has no impact on your credit score. However, if getting hitched or splitting up messes with your finances, it could. The legal process of marriage and divorce are not recorded on your credit report and do not contribute to your score. But by adding a new source of income to your home, you might manage your finances better and improve your score. Conversely, taking on support and other divorce obligations could wreck your finances and your FICO score.
5 – Closing accounts you don’t use
You might have older credit card accounts or retail accounts you no longer use. Closing them down might seem like good financial housekeeping, but it can hurt your score. Here’s why. Your average age of credit is important and if those older cards are boosting your score, closing them can drop it. It’s wise to assess your average age of credit with those cards open and what it will be when you close them to ensure you don’t unintentionally cause a big hit on your FICO score.
In addition to knowing what actions won’t hurt or help your credit score, it’s just as important to know what moves will fast-track your credit score for improvement, especially if you’ve recently completed a bankruptcy discharge and want to make the most of your fresh financial start. As soon as you have your discharge in hand, it’s time to start working on your credit. To learn more, check out Credit Score Keys today.