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What You Don't Know That Affects Your Credit Score

Grandpa always cautioned never to buy anything you couldn’t pay for in full. But Grandpa also kept his money in a burlap bag and never owned a credit card. Grandpa’s Depression Era advice proves worthy in our credit dependent world. Creditors are looking primarily to see if you pay your bills on time. Earning good credit scores doesn’t mean you have to pay off your balances each month. If you pay the minimum, it’s all the same to them. Just pay on time, every month, like grandpa said.

How Your Credit Score Is Reduced

Many people miss a payment, bounce a check, or overdraft his or her direct pay. This happens to the best many people, even when circumstances are favorable. When payments are missed only by a few hours or a few days. even 30 to 60 days late, there is a chance that these may never be reported to a credit bureau. A quick call to your creditor and you’ll be spared any dings on your score.

However, late payments made 90 days or more after the due date can damage your credit and remain on your report for up to seven years. The amount of the late payment does not matters, even if it was only $10.

Payment History Is Just The Start

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Creditors not only look at your debt-to-income ratio, but they look at how much you owe compared with your available balances. Creditors also consider how long you have been using your credit, as well as how many times you’ve applied for credit in the recent past. Having a long payment history and few credit inquiries reflect well in the score.

If you are starting (or rebuilding) your credit, you will need to have at least one account that’s been active for a minimum of six months and one that has been updated in the past six.

Overdue Library Books & Parking Tickets Can Hurt Your Credit

Unpaid library fines, late child support payment, utility bills and even late parking ticket can all negatively affect your credit score. However, job loss or unexpected medical bills aren’t factored into your payment history.

How Credit Card Companies Take Advantage of Customers

Credit card companies can hurt your score more than many people realize. Missed payments often lead to an immediate interest rate increase and if the credit card is overcharged, overdraft fees can take effect.

The False Security of the Debit Card

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Debit cards are good tools to help you keep better track of your spending, but if you spend more than what’s in your account, you can rack up overdraft fees of an average of $30 per purchase. When debit cards are used for hotels and rental cars, the company blocks off a couple hundred dollars, tying up your available funds and putting you at greater risk for overdraft. Some gas stations and retail outlets charge additional fees as well. Using a credit card in these situations will ensure that the exact amounts of your expenses are rung up at the time the purchase is made.

Credit cards can also offer more protection if your card or numbers are stolen. If a thief steals a debit card, the account can be drained quickly and make recovery impossible.

Tempting the Small Business Owner into Expensive Debt

If you’re starting or supporting a small business, you know that it’s harder than ever to find cash. Stocks and housing values are down, severely hampering your financing choices. While using credit cards might be tempting, this might start a pattern where the profit from the business goes to pay off credit card debt, says Panda Morgan of the Greater Sacramento Small Business Development Center. Take the time to write a business plan and apply for a business loan, which will hold an interest rate in the single digits. Credit card companies have been known to charge 15-19 percent, so shop around for the best rates if you choose to go this route.

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The bottom line? Use credit cards carefully, and make payments on time, just like Granpa said.

Information for this article was gathered from a variety of sources including: Phoenix Business Journal, Birmingham Business Journal, Pittsburgh Business Times, The Tigard Times, Fair Isaac Corporation, Lawyers Title Agency of Washington, S. Michael Windsor, Helen Hecker of Articlesbase.com, Liz Pulliam Weston, Personal Finance Columnist, and The Today Show.