Most consumers don’t have a clear
understanding for how credit works. Maybe you are one of these people,
or maybe you are an expert.
Regardless, there are some things that you
should know or review to keep your credit score rating
where it should
be. Most people think that if they have a line of credit somewhere and
pay only the minimum amount monthly there is no problem. Unfortunately,
it’s not that easy.
Did you know that there are three separate
credit reporting agencies that keep credit reports on you? These
organizations are Experian, Equifax, and TransUnion. They maintain in
your file your credit history and accounts.
These three companies do
not share information with each other though, so your credit score
rating may be different with each of these companies. The reason this
happens is because not every creditor reports to all three of these
credit bureaus. Actually, very few creditors report to all three.
Have you heard that making inquiries into
your credit report affects your credit score rating? This statement is
true. Depending on the type of inquiry made will determine the
significance of the effect.
For example, if you are asking for your
free annual credit report, this is considered a soft inquiry and will
not affect your credit negatively. Or if you are just finding out if
you meet a company’s criteria for a new product that is
considered a soft inquiry because you aren’t actually
applying for a loan.
However, if you are applying for a new line
of credit at a department store, for example, this will have a huge
impact on your score. When you are approved for another loan or credit
account, your credit score will reflect that you have new line of
credit and could potentially run your finances dry.
Even though you can
personally pull your credit report annually (one time per year) for
free, and not have it damage your credit, having it pulled multiple
times can harm your credit score rating.
Every time a creditor pulls
your report, it is recorded with that credit bureau, also showing if
the pull was a hard or soft pull. Many hard pulls will adversely affect
your credit score.
Another thing to consider is how many times
you have had hard pulls over time. For example, if you have 20 hard
pulls over a three year period, it won’t affect your credit
score rating that bad. But if those pulls were made only over a period
of a few months it will definitely be a huge problem.
The point is to be wise with the credit
lines you apply for and how often you apply for them. Even though you
may need that line of credit, you may want to think about how that new
credit card will affect your credit score rating.