A credit score is a numerical and statistic figure that depicts an individual’s creditworthiness. This is based on your credit history and an analysis of a person’s credit files and reports. A credit score ranges from 300 to 850 on average; the higher a credit score may be, the more trustworthy a person is considered in terms of his financing.
Credit scores are also based on how you deal with making payments on time, as well as the position of accounts that you may have in good standing. A decent credit score instantly elevates your chances of securing a loan at low-interest rates but if you have any unsecured business loans, the scenario can be changed.
Similarly, you can save tremendous amounts, such as bearing the high cost of interest rates. Apart from that, you also have an edge when it comes to getting employed as employers can view how responsible you are and can be impressed enough to land you a dream job.
You can also eliminate the possibility of having to put up with a security deposit when applying for a loan or paying on installments. Renting an apartment and paying lower premiums for insurances such as automobiles and premises is dependant and is made easier as per the liability of your credit score.
Several factors may impact your credit scores directly or indirectly. Some of which may be positive or negative. You must focus on being able to maintain a sound credit score while also not having to worry about some adjustments that may come about due to various reasons but will not affect the overall status of your credit score.
1. Income fluctuation
A common misconception is that your salary affects your credit score. That is actually not the case. Sure, your employer may be listed on your credit report, but that does not have an impact on your credit score. There is no connection between a credit score and your income, neither earning a high wage help in having a high credit score.
Your credit scores will remain unchanged, and whether or not it’s reasonable depends on other factors. It is also possible to have a good credit score while you are unemployed, receiving unemployment benefits by the government, surviving on pensions, or living hand to mouth. However, a factor to keep in mind is that it may indirectly cause an influence. Losing your job could hurt being able to pay your bills on time, which in turn could obviously then affect your credit score. Lenders and institutions that can provide you with financial assistance may have a look at your salary to assess whether or not you could afford the repayment and then decide a period for that accordingly.
2. Personal life and information
Credit reports consist of your necessary personal information. This includes your name, your address (and any changes to it), date of birth, social security number, and public information about your financial history. Credit files do not take into account irrelevant information such as your race, marital status, level of education, income, and political party.
Thus, it will not bring about any change in your credit score. Similarly, it is essential to note that your marital status will not affect your credit score, as in your credit history, and the score is never merged or combined with your spouse’s. Even if your partner has a poor credit score, it won’t affect yours, neither will it have an impact on your chances of securing a loan and enjoying other benefits. That is unless the two of you opt and apply for a joint mortgage or use a joint credit card, but in no way can it change the status of your personal credit score, good or bad.
Filing for divorce also does not affect your credit score directly, but any late payments to your bills could prove to be a problem which could then negatively impact your credit score. In case you and your spouse jointly own premises or property, you both will be held responsible for any debts you may incur and have to pay off.
3. Denied credit
In the unlikely event of you being denied credit or if your application for a loan may be disapproved of, you will not have to worry about it affecting your credit score. Fortunately enough, any acceptance or disapprovals of your investments and credit denial will not show up on your credit history.
The only consequence you may face as a result of credit denial is a ‘hard inquiry’ the next time you do apply for a loan or any financial assistance. However, it is temporary and is not a factor to worry about, apart from this, there is no other downside that you will have to face if your credit gets denied.
4. Payments to small scale businesses
Credit bureaus are the ones who look after and assess your credit scores. They tend to be quite strict when it comes to choosing who can deliver and report financial related consumer information to them. In most cases, small scale business is deprived of this ability.
Payments in the form of bills to small companies such as lawn care, pest control, personal services, and rent do not appear on your credit report. In case a company that is feasible enough to report to credit, bureaus do not report payment information on the time it could affect your financial history with that the company could affect your credit score.
5. Paying for someone else
Acts of kindness go a long way, but not long enough to change your credit scores. If you do intend to help out a family member or friend who may be suffering from a budget constraint, you must acknowledge that such a thing will not bring a change to your credit scores; therefore, it should be done purely for the contentment of your heart. A credit file will only have a report of anyone who owns the bill, without considering who actually might pay for the debt.
6. Your interest rate
While you are applying for a loan, you may be keen to shop around for the best and lowest interest rates out there. Don’t hesitate to do so as multiple inquiries are often considered as one if they typically occur in a span of a couple of weeks. Yes, scoring models are delicate and fragile enough to take notice when you are out shopping for the best interest rates but that won’t create an impact on your credit score.
These are some of the many factors that do not bring about any change to your credit score. A decent credit score can be attained mainly on your responsiveness to paying bills and making payments efficiently and at the right time. There may be indirect impacts on your credit score, but nothing that could directly affect it.
You must enlighten yourself with information about factors that impact your credit score and sort it out with misconceptions that do not. Make sure you are not stressing out on minor details such as the above that you may think is impacting your credit score but are actually not. Keep track of your credit files and history to stay updated with your financial accounts.