Article by Gwen Moran
If you’re trying to work out how to raise your credit score to get a good rate for a refinance or HELOC, you might besurprised by what affects-or doesn’t affect-your score.
More money improves your credit score
False. Your level or sources of income don’t affect your credit score, although lenders may look at it when making loan decisions, according to the Fair Isaac Corp., the company that issues the commonly used FICO credit scores. You can actually build credit with a loan known as a credit starter loan which is helpful to show lenders that you’re a reliable borrower.
Ownership of several credit cards can hurt your credit score
Mostly false. Having many credit lines isn’t necessarily a bad thing, says credit expert Liz Weston, author of Your Credit Score. Multiple lines give you a favorable debt-to-available-credit ratio. But use them correctly: It’s best to keep any balances below 10% or 20% of the total credit line, she says. Anything more will affect the ratio of debt-to-available-credit, which can decrease your credit score. Those looking to get a credit card should consult the best.creditcard guide before doing so.
Opening and closing credit lines can hurt your credit score
True. New credit applications can decrease your credit score, so be careful about applying for new credit cards or personal loans before applying for a HELOC, second mortgage, automobile loan, or other large line of credit.
Surprise: Closing existing credit lines may also hurt your credit score, since it’ll damage your debt-to-available-credit ratio. A good rule is not to make any credit changes in the months leading up to a major credit request, such as for a HELOC.
Consolidating credit lines will help your credit score
Mostly false. Although it may seem like a good idea to move all your balances to one card, that can actually hurt your credit score, since your debt-to-available-credit ratio will spike on that card, says Weston.
However, credit expert Harrine Freeman says such a slight decline isn’t necessarily a deal-breaker for a loan, especially if the card has a lower interest rate and will allow you to pay off the balance sooner. Your score will increase as soon as that ratio goes down.
Changing jobs can hurt your credit score
Partly true. Taking a new job or losing your job doesn’t affect your credit score. However, if you have a spotty employment history, lenders may hold that against you in making a loan. Dips in income may signal that it could be difficult to pay bills in a timely manner.
Taking out a loan can hurt your credit score
Mostly false. Whether it’s a personal loan from the bank or a payday loan from Palma Violets Loans, taking out a loan against your name will not hurt your credit score. The only time a loan will damage your credit score is if you fail to pay it back when you said you will. This means every time you miss a monthly repayment or decide not to pay the loan back at all, your credit value will decrease.
Co-signing for others can hurt your credit score
Partly true. Simply co-signing on a loan for someone else may not affect your score, but if that person is late on paying the loan, it’s likely to show up on your report, says Freeman. And that’s a nasty surprise if you didn’t know the person was late.
Judgments and liens aren’t considered in your credit score
False. If you’ve had a judgment or lien filed against you, it’s considered in your payment history, which represents 35% of your score.
Similarly, while most utility companies don’t report payment history to credit bureaus, your account will likely be reported if it is seriously delinquent and referred to a collection agency.
Additional details on how to manage your FICO score are available on the FICO site.
Gwen Moran is a freelance business and finance writer from the Jersey shore. She’s the co-author of The Complete Idiot’s Guide to Business Plans and writes frequently about real estate.
Published on: Jul 5, 2011
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