Everyone knows that the two most significant variables in determining a credit score are on-time bill payments and low debt levels. However, other, less apparent aspects may affect our results, and only some people know them. When you lease a mobile phone, rent an apartment, or purchase a house, your credit score plays a role in the decision. Lenders might use it to indicate how likely you are to repay a loan. Your credit score is based on a wide variety of factors. The apparent threats to its health, such as missed payments, bankruptcies, and foreclosures, are not the only ones.

There Are Top 4 Things You Didn't Know Could Hurt Your Credit Score

Your Credit History's Length

Your ability to borrow as well as return money on time is a significant factor in determining your credit score. This means that those who are just starting to establish themselves financially, such as young adults, have less to show creditors and credit card companies about their reliability. It seems that those with less credit-related activity, or "thin files" as they are known in the business, would also have poor credit ratings. Also, their credit limits are often smaller, making it challenging to maintain a low credit use ratio. Don't worry; your credit age will rise as time passes, and other positive characteristics will substantially influence your score. Seven years of age is usually required to build a solid credit profile. Even though your account is still young, staying on top of your portfolio's health is essential.

Paid Charge-Offs

If a lender decides it is hopeless to recoup its loss due to overdue payments, it may "charge off" such accounts and sell them to a collections agency for a fraction of their original value. A charge-off may have a devastating effect on your credit score. According to Varon, a single unpaid obligation sent to collections may cause a 50-point drop in a person's credit score. However, did you realize that these charge-offs can affect your credit even after you pay them? There are situations where a charge-off may be removed from a credit record. The charge-off amount, even if paid, will stay on your credit record for seven years, albeit it may have less of an effect than an unpaid charge-off.

Closing A Credit Account

Repaying a debt may sometimes result in a temporary decrease in credit score, which can surprise borrowers. While this may seem unfair, it has a rationale that rests in the numbers used to determine your creditworthiness. The decline, moreover, ought to be short-lived. Let's say you repaid a debt and no longer need to list it as an open account. Although it will not affect your credit score, it will remain on your record for seven years. If you cancel an account, the credit limit associated with it will no longer be included against your credit use ratio. Having too little credit history diversity may also lower your score, so if that was your sole installment loan, you should look into other options.

Exceeding The Credit Card Limit

The credit card company may want you to spend only part of your available credit even if they have granted you a high limit. Using too much of your available credit, known as your credit usage ratio, might harm your score. Credit card issuers consider you high-risk when you use all your available credit. Those prone to this behavior are statistically more likely to default on their loans. Pay close attention to how much of a percentage of your available credit you use. A credit card debt of $500 might have a more significant impact on your credit score if you have a lower credit limit than a larger credit limit. Even though it can seem contradictory, those with the best credit tend to use a small fraction of their available credit. Keeping your credit usage ratio at 10% or below is optimal for maintaining a high credit score.

Conclusion

One apparent approach is to pay bills late, but other options may also come to mind, such as using credit cards to their maximum limit. But that's only the beginning of the items to consider. Read on to learn about more than a dozen ways you may lower your credit score. An individual's credit score might take a hit if even a few invoices go unpaid. It could be a bad sign if you've recently applied for a lot of credit. Having a corporate credit card as the principal account holder might impact your credit score. Your excellent credit score might suddenly drop for any number of surprising reasons. Everyone knows that the two most significant variables in determining a credit score are on-time bill payments and low debt levels.