Late payments and bouncing up against your credit limits are the typical do-not-do actions of the credit world. Like holiday hangover debt, we do our best to steer clear of those. Otherwise, you could hurt your credit score.
These obvious credit score hang-ups aren’t the only pitfalls to look out for anymore.
As more changes come to credit score models, there will be a next generation of do-not-dos that, if you like good credit, you must take care to avoid.
Stay on top of these three factors of your financial life, because they may one day push your credit score over the thin line between approval and denial if you aren’t careful.
Experian, one of the big three credit bureaus, recently started including residential rental payment data on consumer credit reports. Luckily, Experian only reports positive data, so paying on time will help build most consumers’ credit. But by next year, Experian plans to add negative reporting to the mix, meaning that one late rent payment could hurt your credit score. Plus, instead of the 30-day period until a past-due account is considered delinquent (as with credit cards and mortgages); rent payments are usually considered late after only 5 days. More credit bureaus may start adding this data on how good—or bad—a renter you are.
Your Last 24 Months
Had an unfortunate bankruptcy or slew of medical bills that were out of your control in the last two years? It may cut your credit score even deeper. More credit score models could mimic the VantageScore model, a credit score that claims to be more predicative of risk because it bases scores primarily on a 24-month review of a consumer’s credit file. Before, long-standing credit history was a major factor in credit scores. Now, recent credit history could outweigh your past good deeds. If you’ve been misbehaving with credit in the last few months, your established history may not outweigh recent actions’ negative impact.
Paying off a Loan
This isn’t actually a “new” factor, but one that many consumers don’t know. Paying off installment debt, such as a mortgage, auto loan, and student loans, effectively closes that account once paid in full. While getting rid of debt helps credit scores, closing a long-standing loan could also throw it off. See, Breadth and depth of credit is a significant factor in credit scores; eliminating an auto loan or mortgage from your credit mix could actually hurt your score. This is no different than closing out your oldest credit card account. You no longer have that credit history or credit type listed as “open” on your report, and your credit score may drop subsequently. As New Year’s Resolutions help consumers ditch debt, be cautious of all the ways your credit is affected.
These factors may not be hitting your credit score right now, but keep in mind that the credit landscape is constantly shifting.
Do yourself a favor and establish good credit habits now, keep track of your credit score to monitor any changes, and always ahead and around the corner when it comes to actions dealing with credit.
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