How bad credit scores can hurt you

by Herb Weisbaum

What can hurt your credit score

(KOMO file photo)

Surveys show that most Americans know a few key points about credit scores . They understand that a good credit score is important and a bad score can stop them from getting a credit card or qualifying for a loan.

After that, there’s a good deal of confusion and misinformation.

"What a lot of people don't know is that a bad credit score can hurt you in terms of your car insurance, your homeowners insurance,” said Liz Weston, a personal finance columnist with NerdWallet. “You could very well be paying more because you have bad credit, than if you had good credit."

Landlords check your credit and so do utilities and cellphone companies.

A lot of people mistakenly believe that keeping a small balance on their credit card from month to month will help improve their score.

"You do not have to carry a balance, you don't have to have debt to have good credit scores,” Weston said. "What you have to do is have credit accounts and use them – use them lightly but regularly. But there’s no reason to carry a balance. There's no reason to pay a dime of interest. I don't and I have terrific scores.”

One thing that will clobber you credit scores – making a late payment.


Credit scores: Can another card user hurt your credit rating?

Credit scores for children and spouses can be helped by adding then as authorized users on your own credit card. But does that put your own credit scores at risk from their behavior?

By Stacy Johnson , Guest blogger June 11, 2012

  • What can hurt your credit score

What can hurt your credit score

Helping your spouse or kids establish credit by “piggybacking” on yours is a nice thing to do. But is it wise? Here’s an email I recently received…

Is my credit being affected by adding my young adult daughter as an authorized user on my credit card? She doesn’t actually have a card in her possession, nor is she using it in any way. But they told me she would benefit from my monthly payoffs of the card. I wonder now if I am also tied to her credit in any way. Although not bad, there just isn’t much to go on as of yet. She is very responsible and hard working and quite trustworthy. However, I’m not naive enough to know that none of us can predict the future. What do you recommend?

Here’s your answer, Trish!

First, don’t worry about your daughter’s credit (or lack thereof) hurting or otherwise affecting yours. When you allow someone to become an authorized user on your account, they’re linked to your credit, but you’re not linked to theirs.

While allowing your daughter to take a ride on your credit history is a nice thing to do, and it certainly can’t hurt, don’t expect miracles. Since your daughter isn’t liable for the bill – it’s still your sole liability – the boost to her credit may not be as great as you think.

Here’s what credit reporting agency Experian says on the subject. It’s about adding a spouse, but the idea is the same…

Including your wife as an authorized user will help her establish a credit history.

Authorized user accounts are included in a credit report and can be considered when making lending decisions. However, an authorized user has no responsibility for repayment of the debt. For that reason, they often have less bearing on a lender’s decision, and may not be included in some credit score calculations.

Although authorized user accounts are not always included in credit scores, they will result in a credit history being established and eventually can help your wife qualify independently for her own accounts.

In addition, in order for an authorized user to benefit from someone else’s credit history, there should be a credit card issued in their name. You say, “she doesn’t actually have a card in her possession,” which I’m reading as: A card exists, but she doesn’t physically have it. If so, that’s good. Without a card issued in her name, FICO – generator of the most widely used credit score – won’t count it when they compute her credit score.

What would be more beneficial to help your daughter establish credit is to have a joint account with her. That means you establish a credit account using both of your credit histories, and she’s equally responsible for the debt. Obviously, these types of accounts are potentially more problematic, but if you treat it the same way as you are the current account – allowing her no access to the card – it should be relatively low risk.

Keep in mind, however, that if she does end up with a credit card in her purse, your credit will be vulnerable if bills go unpaid. As a joint account holder, she has full access and full responsibility for the debt. Which means there’s nothing preventing her from simply calling the issuing bank and requesting a card. So you’d want to do this only in situations where you feel comfortable that won’t occur.

What if the unthinkable happens? As a joint account holder, you can call the issuer and close the account to new purchases, then cancel the account. (See my recent post Ask Stacy: Can I Get My Sister Off My Credit Card?) But as anyone who’s had a credit card knows, it doesn’t take long to rack up some serious debt. So tread cautiously.

Stacy Johnson is the president and founder of Money Talks News, a consumer/personal finance TV news feature that airs in about 80 cities as well as around the Web. This column first appeared in Money Talks News.

The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.


7 Ways a Bad Credit Score Can Hurt You

Everyone wants a good credit score. If your report shows you likely have a 700 or higher, you’ll have access to better interest rates, be approved for more loans and have higher credit limits.

Even if you aren’t concerned with these things, having a bad credit score can hurt you.

Here are seven surprising ways your negative credit score can affect your life:

1. Finding employment may be more difficult

This may strike you as odd, since you’re not planning on making payments to your new employer, but the credit report will indicate how responsible you are.

The theory is if you’re not responsible with your bills, you won’t be responsible with your job either. A candidate with a better score will probably get the job.

So you never took care of your credit score because you always figured you would pay in cash if you really needed something?

Well, your potential landlord doesn’t really care what your philosophy is. His philosophy is renting his unit to renters with a good credit score, and most of his peers feel the same.

However, it’s still possible to rent even if your credit score isn’t so hot.

It’s virtually impossible to live in America today without ever taking out a loan. When you have bad credit, you’re always going to pay a higher interest rate — you’re a “credit risk.”

This means you’ll have higher payments, essentially forcing you to pay more for the same products than those with better credit scores. However, a credit repair firm may be able to help you raise your score.

4. Home ownership becomes an unfulfilled dream

The traditional American dream of home ownership is virtually impossible for anyone with less than a 640 beacon.

You may be able to find a lender who will approve you for a mortgage if your score is lower, but you’ll need to come up with a large down payment, which may prove impossible to save up.

Whether you keep your bad credit score a secret or put it out in the open from day one, a bad credit score is likely to cause some problems for you.

No one wants to be surprised to find out their partner has bad credit, and many potential mates will run the other way if they’re given a heads up.

6. Car insurance is more expensive

Some insurance providers feel your credit rating is an indication of how likely you are to get into an accident.

A good credit score means you’re more careful and your rates will be lower by as much as 116 percent, according to one study. A bad credit score indicates you’re careless and your rates will be higher.

7. Expensive utility company deposits

When you sign up for utilities, like electricity or natural gas, you’re usually required to submit to a credit check.

If you’re found to be a high-risk customer, you’ll probably be required to provide a deposit. For those with bad credit, these can be as high as $1,000.

Thankfully, they’re refundable (as long as you pay your utility bills on time).

Photo source: realestateinvestingnewswatch.com.

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4 (Surprising) Things a Bad Credit Score Will Ruin

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what can hurt your credit score

What can hurt your credit score

What can hurt your credit score

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Does Cancelling Credit Cards Hurt Your Credit Score?

What can hurt your credit score

What can hurt your credit score

Whether you have too many and want to cut back, or you want to limit your chances of overspending, we’ve probably all found ourselves in the situation of trying to decide whether or not we should cancel a credit card . Before jumping the gun, you should first consider how doing so could affect your credit score – because it will, and not in a positive way.

How Your Credit Score is Calculated

First, let’s review how your credit score is calculated. Remember that “credit” is a tool you can use to pay for something without physically having the cash in your wallet, on the promise that you will repay it. Typical forms of credit include: credit cards, lines of credit, mortgages , student loans, etc. How you use your credit is ultimately what determines your credit score.

The two credit-reporting agencies in Canada – Equifax and TransUnion – don’t reveal exactly how credit scores are calculated, but here’s what we know is included:

  1. Payment history
  2. Use of available credit*
  3. Length of credit history**
  4. Types of credit
  5. Number of inquiries

How Cancelling a Credit Card Hurts Your Credit Score

If you are considering cancelling a credit card (closing the account), there are two ways this action could affect your credit history and credit score. First, if it is your oldest card, closing the account will affect the length of your credit history**. However, even after you cancel a credit card, the account will still show on your credit history for around 10 years. As a result, cancelling your oldest credit card account would not have an immediate effect on the length of your credit history. The effect it would have down the line, however, would depend on how old your other credit cards are.

For example, if you cancel one credit card that is 10 years old and leave open a credit card that is 2 years old, then after 10 years when the card you cancelled is removed from your credit history, you would still be left with one credit card that is 12 years old – and that’s great. But if you hadn’t cancelled the other credit card, then 10 years down the line you would have a credit card that is 20 years old – and that’s even better. In this case, cancelling your oldest card could have a negative impact on your credit score, which means it may be worth it to keep the older card open. If your two credit cards were close in age, then the affect would be minimal.

One factor that could result in an immediate impact on your credit score when cancelling a credit card is your credit utilization (use of available credit*). To maintain a good credit score, it is wise to utilize a maximum 35% of your available credit at any given time. For example, if you have two credit cards, both with a $10,000 credit limit, and between the two have a $6,000 balance, then your credit utilization is 30% ($6,000/$20,000). If you decided to do a balance transfer and cancel one of your credit cards, your credit utilization would rise to 60% ($6,000/$10,000); this is the main way in which cancelling a credit card can affect your credit score.

One way to avoid this is if you were cancelling a credit card while applying for a new credit card with the same limit, or getting a credit limit increase on a current card. The key point to remember is that, in most situations, you do not want to lower the amount of available credit you have. Also remember that, before you attempt to cancel a credit card, it is important to pay the balance off in full.

Ultimately, if you want to cancel a credit card, you are able to do so without dramatically lowering your credit score. Keep the factors mentioned above in mind, when making all decisions about your credit, and there should be little-to-no affect on your credit score.

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