We all have learned that missing or making late payments or defaulting on a loan has a negative effect on your credit score. Keeping a high credit score is beneficial to being able to obtain a loan and receive a better rate on the loan. Many of the inquires on this list are hard inquiries, this is when a lender requests a credit check when making a decision if they are going to extend you a line of credit.
These hard inquires adversely affect your score. We are going to look at some not so widely known events that can bring your score down.
Requesting a Credit Limit Increase
If this request to your credit card company requires them to run your credit you can lose anywhere from a handful of points from your credit score. If you make this request with multiple companies you can adversely affect your score. Before you make a request it would be a good idea to check with your credit card company if they will have to run your credit before they initiate the request.
Renting a Car with a Debit Card
Mostly everyone I know never reads the fine print when signing documents and this is where it can get you into trouble when renting a car. In the eyes of the rental car agencies when you rent a car, they are loaning you a car. When using a credit card, there is a deposit put on the card, but when using a Debit Card this does not happen. So there is a clause in the fine print that allows the agency to pull your credit.
Not Using Your Credit Cards/Closing Zero Balance Accounts
This might sound hard to believe but if there is a long period of inactivity on your card then the issuing institution might close your account. This goes the same for closing accounts with a zero balance. When either of these two things happen they will bring down your score. The FICO scoring system formulates a percentage of your score based on the amount of credit card debt you’ve charged overtime. Once you have an account closed or you close the account you lose the history of debt charged. Beyond that you affect your credit utilization rate due to the change in your credit profile.
Using Local Credit Financing
Buying items from a locally owned furniture, electronic or appliance stores with their financing is another way that brings down your score. Most consumers tend to spend exactly what the limit is on the issuing card. When this happened your new line of credit is maxed out which brings down your credit utilization rate.
Using a Business Credit Card
The days of your business credit card being separated from your personal credit are no longer the case. The major credit card companies are now requiring a personal guarantee when you apply for a new business card. This makes you a co-signer for you business account and now the debt you use will be tied to your personal credit. If you have to sign a personal guarantee to get the card, you might want to consider using one of your existing credit cards and be reimbursed for your purchases. Another option is to take out a small business loan to make your purchases.
A handful of points here and a handful of points there and you could eventually drop yourself from Excellent Credit to Very Good credit. When your credit rating drops, the amount, rate and ease of getting a loan is affected. Being smart and learning about what can raise and lower your credit rating will help you when it is time to get the loan you need.