Credit is a concept that’s mysterious to most people. There are many factors that influence your credit score, and it can be hard to know how your actions will influence it.
Some common money problems such as missing payments and accumulating too much debt have a direct, negative impact on your credit. But some others don’t actually affect your credit at all. The following is a closer look at five money problems that won’t hurt your credit.
Having Your Income Cut
Whether your boss cut your hours or you lost your job completely, a pay decrease may impact your personal and financial life, but it won’t directly affect your credit. That’s because salary isn’t a factor that credit bureaus consider when calculating your score. That said, losing income can impact your credit indirectly.
“While your salary isn’t usually factored into credit scores, it’s crucial to remember that some lenders and creditors may take your income into account when analyzing a credit request,” said Lyle Solomon, a consumer finance expert and principal attorney at Oak View Law Group. For example, certain credit cards require a minimum income to be approved. Creditors might also consider your debt-to-income ratio, which measures how much of your income goes toward debt obligations. Losing income could cause that ratio to shoot up.
Finally, Solomon noted that a decrease in income could result in a lower credit score if it leads to missing or late payments on your credit accounts, since credit scores are impacted by payment history.
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Paying a Bill a Few Days Late
Speaking of payment history, it is the biggest factor that impacts your credit — accounting for 35% of your score. That means paying your bills late is the easiest way to end up with bad credit.
Fortunately, you do have a bit of wiggle room for one-off mistakes. Late payments generally aren’t reported to the credit bureaus until they’re 30 days past due. Plus, some payment activity isn’t reported to the credit bureaus at all, including rent and utilities. That is, unless you’re so far behind that the account is eventually sent to collections.
Regardless of whether your payment activity makes its way to your credit bureau or not, it’s still a good idea to avoid missing due dates. “If you don’t make these payments on time, you’ll be charged late fees, and your service may be terminated,” Solomon said. “Of course, any item sent to collections, such as delinquent rent, utility bills or phone bills, will lower your credit score.”
Depleting Your Savings
If you experienced a financial rough patch and had to use up a good chunk of your savings to get by, the good news is that it won’t impact your credit. “The credit bureaus are unaware of the amount of money you have in your bank account, so your credit score won’t suffer if you need to spend your money in an emergency,” Solomon said.
It’s a good idea to work on building up that financial safety net ASAP, though. “If you overdraft regularly, you’re likely to incur a lot of costs,” Solomon said. Your bank is unlikely to report you to the credit bureaus, but they will send that info to ChexSystems, which functions similarly to a credit report for your financial transactions. “A bad ChexSystems report will not harm your credit score, but it may make opening a bank account more difficult,” he added.
Splitting up with a spouse can have major implications for your finances. However, you maintain a separate credit file whether you’re married or not, so the act of getting divorced has no impact on your credit in and of itself.
However, even though filing for divorce has no direct influence on credit scores, it could have a negative impact if you have late or missing payments on accounts, according to Solomon. “Property – and obligations – acquired during the marriage usually are owned equally by both spouses in community property jurisdictions,” he said. “That implies you and your spouse might be liable for whatever debt you racked up during your marriage.”
Being Denied a Credit Card or Loan
Getting turned down when you apply to borrow money can be a bummer, but simply being denied won’t count as a ding against your credit. Even so, applying for credit does impact your credit, regardless of the outcome.
Every time you submit an application, the creditor pulls your credit report. “Applying may result in a hard inquiry, which can negatively influence credit ratings,” Solomon said. One or two hard credit inquiries will probably have a minimal impact on your credit — maybe no impact at all. But sending in many applications within a short period of time can be a red flag, and as a result, your credit score could suffer. So if you’re denied a credit card or loan, it’s best to find out why and work on remedying the situation before applying again.
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