Many different factors come into play when it comes to calculating your credit score, and each credit bureau does things just a little differently (their algorithms are secret and change constantly to try and always have the best possible risk ratings). However, there are common themes among all three bureaus that most people know about:
- Payment History
- Amount of Debt and Type of Debt
- Inquiries Into Your Credit Report
- Length of Credit History
- Bankruptcies or Other Delinquencies
But there are other things that could affect your credit score as well, and here the two credit score killers that most people don't realize:
Closing an Account
The biggest factor that most people don't realize can negatively affect their credit score is closing an account. Many individuals who are in debt see paying off the credit card and closing that line of credit as a positive force. However, it can really be a big negative.
Closing a line of credit, even if it is paid off or has no balance, can negatively impact your credit score because it alters three factors on your credit profile:
- That payment history may no longer be reported to the credit bureaus, so you lose points in that metric
- You have suddenly shrunk your amount of available credit, so if you have other debt, it could make your debt to available credit ratio much higher
- It could lower your length of credit history, especially if you've had the account for a long time
Issues With Non-Financial Accounts
The second area that most people don't realize is a credit score killer is being late or delinquent with a non-financial related account. I'm talking about being late on the rent check, or not paying a doctor's bill. Many businesses, including small and medium sized companies, report delinquencies to the credit bureaus just as much as credit card companies do. And because these companies are smaller, it can be harder to get them to remove any reporting once you've corrected the issue. And any negative, including ones from businesses, can really harm your credit score.
Not only that, but future landlords and even potential employers can check your credit report. So if you have issues with non-financial accounts, it could be a problem for you in the future.
If you haven't checked your credit report lately, check it for free using Credit Karma. You can see what your credit score would be, as well as tools to help boost your score.
Do you know of any other random factors that can hurt your score?