Five Unexpected Things That Affect Your Credit Score
From co-signing on someone else's loan to applying for a new credit card and more, financial advisors share their insight.
A good credit score can unlock a lot of doors in your life. "Having good to excellent credit makes you more likely to qualify for loans with lower interest rates, which can save you thousands of dollars," says credit card expert Sara Rathner of NerdWallet. "Your credit score can also help or hurt your access to other important things such as utilities, cell phone plans, rental homes, and even some jobs."
A three-digit numerical grade based on your payment history and credit reports, Deidra Willis, a financial advisor at Northwestern Mutual, says that your credit score provides potential lenders with a snapshot of your creditworthiness. "Think of credit as credibility that may require more or less of your dollar," she explains. "There's a lot that goes into your credit score, and because of that, it can fluctuate quickly and often." So, what about those unexpected things can affect your credit score? From co-signing on someone else's loan to applying for a new credit card and more, financial advisors share their insight ahead.
Making a late payment.
Like it or not, Rathner says that paying even one bill past the deadline can negatively impact your credit score. "Payments to utility companies or your landlord may be reported to credit bureaus, meaning a single late payment can lower your credit score," she explains. Of course, the longer you wait to make a payment the more adversely it can affect your credit score. "If you pay a credit card bill more than 30 days late, you may notice a dramatic drop in your credit score—around 100 points," warns Rathner. "Avoid this by setting up email or text alerts from your credit card issuer so you know exactly when your bills are due."
Maxing out your credit card every month.
If you're regularly reaching the limit of your credit card at the end of the month, Brandon Goldstein, a financial planner at Prudential, says you'll likely be hurting your credit score over time. "Having a balance near your credit limit can negatively impact your score," he warns. "Try to maintain a balance below 30 percent of your total available credit, which can also help to boost your credit score."
Co-signing someone else's loan.
Make no mistake about it: When you co-sign for a loan with someone, you're essentially applying for the loan with them. This means that if the primary borrower misses or makes a late payment, your credit score can be damaged, too. "Whenever you tie your financial future to someone else, you put yourself at risk," says Rathner. "Co-signing a loan means if the borrower can't make payments, you're on the hook, or else your credit score will pay the price—so be certain of the borrower's credibility before you commit to co-signing."
Applying for a new credit card.
Regardless of whether or not you've been pre-approved, Willis says that applying for a credit card can affect your credit score. "Each time you open a new credit account, it reduces the average length of your credit history," she explains. "Since your length of credit history makes up 15 percent of your total credit score, your score is helped by having older cards and hurt by opening newer ones."
Errors on your credit report.
A minor mistake can have catastrophic consequences on your credit score, which is why Rathner recommends checking your credit card reports for errors on a regular basis. "Mistakes happen, so make a habit of double-checking your credit reports," she advises. "Also keep an eye out for suspicious activity, like accounts opened in your name that you didn't open yourself, as it could be a sign that you're a victim of identity theft."