One of the best ways to start improving your credit score is by learning about the things that can lower it, but it can be tricky. It may surprise you to learn what can lower your score, so we put together 4 things you might not know hurt your credit score.
Having Only One Type of Credit
Did you know that only having one type of credit (like a credit card) can actually hurt your score? The varying types of credit you might have actually make up 10% of your overall credit score, as it shows your ability to manage debt.
You can actually improve your score by adding a different type of loan to your credit history to show lenders that you can manage different credit sources. For example, you could apply for a car loan.
Having a Credit Card that is Never Used
If you have a credit card that has seen a long period of inactivity, your credit issuer may close your account because it is not being used. Some companies may even close your account without notifying you first, which is dangerous because closing an account will lower your credit score.
30% of your credit score is made of how much you owe versus your available credit (utilization ratio). Closing an account with a limit of $5000 has the power to drastically change your ratio and negatively affect your score.
You can avoid this by using your credit card for a few small purchases every month and paying it in full when the bill comes in.
Closing a Credit Card Account
Not only will closing an account affect your utilization ratio, it will also change your credit history which makes up for 35% of your credit score.
When you apply for credit, the creditor will take a look at your payment history to make sure its in good order. But if you close an account, your payment history is shortened and therefore, harder for creditors to approve you. Luckily, Auto Credit YYC can approve anyone, regardless of credit score.
Using a Debit Card for a Car Rental
This one is pretty surprising to most people: renting a car with your debit card instead of a credit card can hurt your credit score. Most companies will require a credit card for payment and deposit, but some will accept a debit card for this.
How it works:
When you rent a car with a debit card, the rental company will be able to access your credit report with a hand inquiry to insure you are reliable. This hand inquiry lowers your score by a few points and stays will remain on your report for 2 years. But if you use a credit card, a hand inquiry is not necessary.
It is important to be aware of things that can negatively affect your credit score, but remember: bad credit doesn’t last forever.
But if you have less-than-great credit and are looking for a vehicle, Auto Credit YYC can approve anyone, regardless of credit score. Fill out the simple application form and we can get you on your way in no time!
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