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 two common ones 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 can affect their credit score 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.
If you haven’t checked your credit report lately, get your FICO score and credit report from Equifax® Score Power today. You can see what your credit score would be, as well as a full copy of your credit report to check for accuracy.
Do you know of any other random factors that can hurt your score?
About Robert
It’s best to keep your oldest credit card(s) open and not close out those accounts. I wouldn’t be too concerned with the debt-to-credit ratio due to closing out an old account but it certainly could affect your score a little bit.
I could hurt – just think about this:
If you have 2 cards each with a $10,000 limit. Say you have a balance of $1,000. With both cards, your ratio is 5%, but if you close one it doubles to 10%. That’s a big jump and could cost you a lot of points.
Consumers have the right to one free credit report per year from each of the three reporting bureaus, so three free reports per year. No need to pay for a credit report, ever. From the FTC on free credit reports:
“AnnualCreditReport(dot)com is the ONLY authorized source for the free annual credit report that’s yours by law. The Fair Credit Reporting Act guarantees you access to your credit report for free from each of the three nationwide credit reporting companies — Experian, Equifax, and TransUnion — every 12 months. The Federal Trade Commission has received complaints from consumers who thought they were ordering their free annual credit report, and yet couldn’t get it without paying fees or buying other services. TV ads, email offers, or online search results may tout “free” credit reports, but there is only one authorized source for a truly free credit report.”
Great tip on the Annual Credit Report site! That is very helpful to look at your report. Awhile ago I hosted a debate on this site whether you should just check your report or pay for your credit score as well, and many people still wanted to know their scores.
I need to pay my medical bills ASAP. I have the cash, just haven’t gotten them all sorted and paid yet. No delinquincy notices yet, but better not risk it. Good to know!
Right opening a new line has less impact than closing an old account.
I never thought about it that way but you are correct.
Closing accounts definitely affects your average length of credit and if you close your oldest your total length. Great tip and hopefully it is a little more known fact now!
We used to have three credit cards. When we had difficulty paying the outstanding balance, we decided to close two of them and keep only one for large purchases. It affected our score a bit but we hope to get it back soon.
You will get it back over time, but it does negatively impact you in the short term. That’s why it’s best to keep them and just not use them.
I have a card from right when I turned 18. It earns no rewards, but I do keep it because of the long credit history.