Understanding your credit can be very confusing at times. There’s so many factors that go into it… The things we thought affected our credit doesn’t, and what we thought didn’t affect our credit, actually does. So it’s very important to understand how credit works, so that you can take full control of your credit health. If you have any type of concerns about factors that do or don’t affect your credit score, don’t worry, you’ll find your answers here.
Does Affect Your Credit Score
Mortgage and Car Payments
When you’re in the market shopping for a house or a car, your credit report is going to be hit with hard credit inquiries. You’ll be applying to multiple locations, and those companies will be checking your credit as part of the approval process, so just keep in mind that your score may drop during this process, but once you find the home or car you want, and start making regular payments on it, you will begin to see your score increase.
Of course when looking for a car or home, they’ll need additional information, such as your proof of income (they’ll usually want copies of your pay stubs), one to two forms of identification (drivers license, social security card, or passport), references, and some even ask for a list of your expenses to determine whether or not they feel you can afford the monthly payments. Being able to afford the payments play a huge role in your approval process. You might have the credit score necessary, but if you don’t make enough money to be able to afford those payments, they can also deny your approval because of that.
Hard Credit Inquiries
Hard inquiries (hard pulls) happen when a lender or some type of financial institution checks your credit to determine your creditworthiness, and ultimately decide if they should lend to you or not. These hard inquiries do typically make your credit score drop a few points, but not drastically; these inquiries require your consent. Now if you’re applying for multiple loans and credit cards at the same time, then you’ll definitely see a drastic drop in your credit score. That can be expected if you’re actually in the market shopping for something in particular like a car or home because you’ll be checking out your options.
Everyone has had a delinquent payment at some point or another due to not having the funds to pay the bill, or simply because you forgot to pay it (sometimes thinking you already did). Delinquent payments apply to anything whether it affects your credit score or not… If you become delinquent on your electric bill, it may not happen right away, but they will turn your lights off and report your failed payments to collections.
Typically if you’re 30 days past the payment due date, that’s when things get tricky. Most companies will charge you a late fee if you past the due date without making a payment. A good habit to have with companies, is to at least give them a call to let them know your situation as to why you’re late with the payment. In making that phone call, you want to give them a date as to when you will pay your balance. It’s not something you have to do, but it’s just a good thing to do. This lets the company know that something has happened, you’re fully aware of being late on the payment, and that you do intend on making the payment. Even though you’re going to be late with the payment, it kind of softens the blow, and makes the company not question your accountability.
Doesn’t Affect Your Credit Score
Utilities not affecting your credit score has always baffled me. Typically places like your electric company, apartment complexes, and cell phone companies will check your credit. Your credit score will determine whether or not you have to put down some type of deposit. The thing that gets me is that once you get approved, or get your account, your on-time, monthly payments have zero effect on your credit score. You would think that because they had to check it initially, that you would get some type of credit for paying on time, but that’s not the case. Now, seemingly, the moment you miss a payment, then they want to report that to the credit bureaus!
Soft Credit Inquiries
These types of inquiries have zero effect on your credit score. You can expect soft inquiries to happen from an employer, during the hiring process. You can expect this to happen in conjunction with background checks. If you pay attention to job applications, you typically see the background check page, and the very next page is the credit check page, that has a section on the Fair Credit Reporting Act.
Also, checking your own credit report is considered as a soft inquiry, and luckily it doesn’t affect your credit score because there are some people (myself included) who check their credit reports a few times a day! For me, I check my credit regularly, especially when I’ve paid something down or off. It’s just a good feeling to see my credit score go up, and to see where it was, to where it currently is. It is definitely my motivation to keep doing good with my repayment habits.
How much money you have in the bank doesn’t affect your credit score. The swiping of your debit card is not the same as the swiping of your credit card. The difference is that with your debit card, you’re using your own personal money from your bank account. With credit cards, your using money that you borrowed a lender, which you will have to pay back.
Your income has nothing to do with your credit score. The only way that your income really contributes to your credit score is how, and how much of your income you use to pay bills that do contribute to your credit score.