11 Things That Won’t Affect Your Credit Score
Most people have a general idea of what a credit score is: a three-digit number, based on your credit history, used by potential creditors to decide how likely you are to repay your debt. The higher your score, the better.
For many folks, though, the details of how that score comes together are a mystery. As a result, they may worry unnecessarily about things that have little or no effect on their credit scores. For example, according to a 2017 myths versus facts survey by credit bureau TransUnion, 43% of people believe that checking their own credit will count against them. (It won’t.)
“I would say the vast majority do not fully understand how credit scores are calculated and the factors that influence them,” said Bruce McClary, vice president of communications for the National Foundation for Credit Counseling. “There’s so much misinformation driving important financial decisions people are making.”
11 things that don’t affect credit scores
Let’s clear up some of the misinformation with a list of 11 things that will not lower your credit scores.
1. Checking your own credit
When a lender checks your credit after you’ve applied for an account, that’s a hard inquiry, and it will be noted on your credit report. Hard credit pulls stay on your report for two years but generally only affect your score for 12 months. Too many hard inquiries over the same 12-month period, at least five or six, according to McClary, could hurt your score. (See below for the “rate-shopping” exception.) A single hard inquiry, he said, “has such a minute impact it’s almost not worth mentioning.”
Checking your own credit is a soft inquiry that has no effect on your score. “You can check your credit a hundred times a month if you want,” McClary said (though he advised against obsessing — every three months should be plenty, he explained). You can get a free copy of your credit report every 12 months from all three credit reporting bureaus — Experian, Equifax and TransUnion — at AnnualCreditReport.com.
Contrary to popular belief, shopping for rates from multiple lenders when you’re in the market for big-ticket items, such as a new car or home, will not count against you — if you’re reasonably quick about it. In fact, multiple inquiries for the same kind of loan (such as a mortgage) within a 14- to 45-day time frame (depending on which scoring formula is used) count as a single inquiry.
3. Not paying off credit card balances in full
Maintaining a modest balance in credit card accounts will not damage your credit score — though it’s important to keep combined balances low for the sake of your credit utilization ratio (the amount of credit you’re using compared with the amount available to you). You should always maintain a ratio below 30% (more on this later). Creditors tend to get a little nervous, McClary said, when your balances get too high.
4. Your income and savings
While it may be a factor in getting approved for credit or a loan, how much money you make (or have in the bank) doesn’t affect your credit score.
5. A spouse’s bad credit
Generally speaking, spouses’ credit scores are maintained separately, so one can’t affect the other. Unless, as McClary pointed out, they have joint responsibility for managing an account. In that case, if one fails to make payments, it will affect the other negatively — for the joint account only.
6. Seeking help from a credit counselor
Working with a credit counselor to get control of your credit will not adversely affect your score or appear on your credit report. What could affect your score is whatever positive steps you take, or your credit counselor takes on your behalf, such as paying down debt or negotiating lower interest rates or reduced fees.
7. Loss of a job
A list of employers may appear on your credit report, but your record of employment, including the loss of your most recent job, will have no effect on your credit score. Of course, lack of employment could keep you from being approved for a loan or credit, and decreased income could affect your ability to pay bills. But simply losing your job won’t ever directly affect your credit score.
8. Receiving government assistance
Public assistance benefits, such as unemployment, disability payments, Medicaid or food stamps, are not reported to credit bureaus.
9. Disputing a charge or an error
Disputing an item on your credit report has no direct effect on your credit score. However, a notation of the dispute may appear on your credit report, and your score might change depending on the outcome of the dispute. For example, if you dispute a negative item and it ends up being removed from your report, your score could improve.
10. Unpaid medical debt within 180 days
Unpaid medical debts do not appear on credit reports — or affect credit scores — until they are at least six months overdue. This 180-day grace period went into effect in September 2017. According to McClary, the long-term effect of medical debt has been reduced in general over the past few years — if the debts are ultimately paid. The new policies arose, he said, “from recognizing the impact medical debt is having on people’s lives. And understanding that debt is not necessarily the fault of the person who owes it.”
11. Tax liens
As of April 2018, the three major credit bureaus removed all tax liens from credit reports. That’s because half of all tax lien data didn’t meet the credit bureaus’ reporting standards. So if you end up with a lien for not paying your taxes, it won’t hurt your score.
So, what can have a negative effect on credit scores?
Lots of things can drag down credit scores, including late payments, overdue debts sent to collections and high credit balances. But McClary emphasized three biggies.
Your payment history
Payment history is your record of repaying creditors, with particular importance placed on timeliness. It determines about 35% of your FICO credit score — the single largest factor. “That’s why it’s vital to keep up with your payments,” McClary said, “and make sure you’re not falling behind.”
High credit card balances
As mentioned previously, it’s a good idea to keep the combined balances of your credit cards low for a healthy credit utilization ratio, which accounts for roughly 30% of your FICO Score. Some credit experts recommend using no more than 30% of your combined available credit. McClary recommended no more than 20%.
Credit utilization is also why it’s sometimes better to leave a credit card account open even if you’re not using it. Closing the account lowers the amount of credit you have available, which can lower your score. It’s an especially good idea to keep it open if it’s one of your older accounts because length of credit history makes up about 15% of your FICO Score.
Inaccurate information on your credit report
McClary suggested checking your credit report regularly for accuracy. “If somebody else’s account information is showing up there, or if your credit activity is being reported incorrectly, that could be damaging your score,” he said. “You need to dispute it immediately.” If you need further help, you could consult a credit repair agency.
The bottom line
If you’ve always heard that doing something — or not doing something — could damage your credit score, it’s probably worth being cautious and doing some investigating. Credit rules are complicated and are subject to change. When it comes to something as important as your credit score, it’s best to understand what will and won’t hurt you.