international student life

international student

Things that Can Damage your credit score without you knowing.

big balances, late or unpaid bills, opening many credit cards, closing old credit cards.

A persons credit score is very important because it is used by lenders like banks, credit unions, stores and credit card companies to decide if to extend credit to you and at what interest rates.

People with good credit are able to get loans at a much lower interest rate than people with bad credit.

It is easy to damage your credit and some obvious things that can do that include not paying your bills or not paying them in time. However there are some other things that people do unknowingly that can also damage your credit score.

Having a big balance on Store Card

Some stores have great deals where you can buy expensive appliances and charge it on your Store card with no interest for up to a year or more. This is a great deal because you get to receive the appliance and will pay no interest for a whole year and this can save you a lot of money on interest payments.

The problem here arises because a person's credit score is calculated using their Credit Utilization Ratio. This is the amount of debt you have divided by your credit limit (Maximum credit card or store card borrowing limit).

So if you charge an expensive appliance of say $5,000 on your store card that has a credit limit of $6,000, then your Credit Utilization Ratio is 5000 divided by 6000 which comes to about 83% utilization. So you are using almost all your credit and this will have a negative effect on your credit score.

Late or unpaid bills

If you have some unpaid bills like parking tickets, fines and other bills, they don't go directly to your credit report but if they are taken to Collections, they will be reported to the credit bureaus and this will negatively affect your credit score.

So it is always wise to pay your bills or make arrangement to make payments on them so they don't damage your credit score unnecessarily.

Opening many Credit Cards in a short time

If you open many credit cards in a short time, this will damage your credit score because lenders like someone who is stable and predictable.

So if you have several credit cards for a long time, that shows some stability but if you open many credit cards in a short time, that indicates that you are in quick need of money and that will work against your score.

Closing old credit card accounts.

If you have several credit cards and pay one off completely, it is not advisable to close that credit card. This is because when you close your credit line, this will reduce your credit availability and your credit-utilization Ratio (debt divided by credit available) will go up because you have less credit available. This will lower your credit score.

It is therefore advisable to keep your credit cards open but with a zero balance. That way you have less debt but also have more credit so that your Credit Utilization Ratio remains low hence your credit score remains high.