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5 Things That Could Be Impacting Your Credit Score Without You Knowing

There are so many aspects to having and maintaining a good credit score that it is quite easy to lose track of the things that you are doing — and whether they are helping or harming you! 

A credit score is a rating conducted in countries such as the USA and Canada, that suggests whether people will be able to meet financial obligations, for example repaying a loan. A low credit score suggests that the person is unlikely to meet the commitments and could make it harder to secure money from a financial institution.

Japan, the UK and the Netherlands are a few examples of countries that do not have a credit scoring system.

Fortunately, you don’t have to have a perfect credit score to get through life but there are steps to take to manage this.  

Aiming to have a good credit score can only benefit you in the long run. Take a look at these five things that you might be doing, without even knowing it, that impacts your credit score. 

1. Missing payments

Missing payments negatively impacts your score. When a payment for anything is missed, even your medical aid, it shows creditors that you are unable to keep to the commitments that you have made. 

If a payment is late by 30 days, it can knock around 100 points off of your credit score. This makes you a higher risk client, as creditors cannot trust you to pay back the credit that you made.

According to ClearScore, once a payment has been missed it will show on your credit history report for up to six years. However, as time passes it will affect your credit score less. 

The smart thing to do after a payment has been missed, is to make sure not to miss another. Then, the best you can do is to just wait it out. After six years have passed, the red mark will drop from your credit history and your credit score could improve. 

2. Taking on too much credit at once

According to CNBC Select, opening too many credit accounts at once impacts your credit score negatively. It might seem like a good idea to apply for credit cards, student loans, vehicle loans, and a home loan all at once, but when you take on too much credit too quickly, creditors think it means that you are dependent on credit. 

What creditors believe then is that you will apply for more credit in the future to sustain your lifestyle. Based on the trends of the rate that you take on credit, you might have used up all of your available credit in a short period of time. 

Therefore, it is recommended that you take on as little credit as possible at a time. Start paying back the credit that you made and as soon as half of the credit has been paid back, you will be clear to start applying for more credit. 

If you manage your credit in a smart manner, your credit score will improve — making you more attractive to creditors. 

3. Not having a credit card

You might be thinking: “I hate debt so I won’t apply for a credit card”. However, that way of thinking is negatively impacting your credit score. It will be impossible to apply for any sort of credit if you do not start by taking on some credit. 

According to Forbes Advisor another way that you are hurting your credit score is by not applying for small amounts of credit. With a credit card, you are in charge of how much credit you would like to make. And by paying back the credit in full, helps your credit score grow. 

Creditors like to see a lengthy credit history when applying for vehicle loan or even home loans. Therefore, having a credit card is the best way to start building your credit history. 

4. Closing credit card accounts

At last, you have paid off the credit card and it’s time to close the account, right? Actually, it is better to keep that account active. Paying off debt can be a lengthy process and a great relief when it comes to an end. 

However, closing a credit account negatively affects your credit score. The interview done by CNBC Select with credit expert John Ulzheimer, identified that closing a credit account is most likely to negatively impact your credit score. Therefore most experts don’t recommend it. 

Creditors like to ensure that applicants have a lengthy credit history to show how they manage credit. When you close the account, it does not reflect towards your name anymore and consequently does not improve your credit score. 

One way to combat this is by keeping the account active and using it for small, manageable purchases. This will improve your score and will show creditors that you are able to manage credit well. 

5. Cosigning 

Cosigning might be even worse than gambling. The act of cosigning does not directly impact your credit score. When co-signing for loans, they show up in your name as you are just as liable as the main account holder to pay back the loan. However, when the person with whom you cosign is unable to pay back their loans, your credit score takes a big knock. 

Though you might be thinking that cosigning helps to increase your mixed credit — the different types of credit you have, for example credit cards, loans or mortgages. According to Chase.com, that is a very small aspect of your credit score and is only effective if you already have a proven track record. 

When making a decision to cosign with someone, make sure that they are in the financial position to take on the new credit. Also make sure that they have a good credit history and won’t make you take on the payments. It is recommended to ensure that, should the person not be able to pay back the credit, you are able to do so. 

Taking care of your credit score means looking out for your future. Being able to take on credit is important, and it starts by avoiding these five mistakes. It can become overwhelming when thinking about how sensitive your credit score really is. 

Therefore, the bottom line is to avoid simple mistakes. This will allow you to take care of your credit score and allow you to apply for better credit rates in the future.

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