Ten Surprising Things That Won’t Hurt Your Credit Rating
Question: Your Visa bill, your electric bill, and your mortgage are all due on the 1st of the month and you don’t have enough money to cover them all. You are worried about hurting your credit rating. But a bonus check from work will come on the 8th. What should you do?
Answer: Pay down the Visa bill. And do it early.
THINK LIKE A BANKER
Faced with the decision above, it seems logical to pay the mortgage first. That’s what most people would do. It’s the biggest bill, so it’s reasonable to assume that’s what the banks will look at first when they figure your credit rating.But insiders know that’s not the way things work. Your credit score is based on the information your lenders send in – and your mortgage company is not going to report you for paying a few days late. It won’t even charge you a late fee for two weeks.Credit-card companies are much less forgiving, though. They will charge a late ee immediately, and report you, too. So focus on that Visa bill. Pay at least the minimum, and pay it a few days early.When your bonus check comes in, make another big payment—even if that means you’ll have to charge a few small things later on in the month. Using your credit cards for small charges and then paying them off every month will actually push your credit rating even higher.
IT’S NOT AWAYS LOGICAL
This situation is just one of the many ways that credit scores fly in the face of logic. By thinking like a banker, you can improve your score and still stay within your budget.
Here’s a list of surprising things that logically seem like they should hurt your credit score but in reality don’t affect it at all:
- Whether you have a job. Are you old enough to remember the old Johnny Carson joke: Got no money? We don’t care. Got no job? We don’t care. Not going to pay your bills? Then we care. Whether you’re employed or laid off or still in school, all have no effect whatsoever on your credit score. All that matters is whether you pay your bills on time.
- How much money you earn. It’s not about whether you are rich or poor; it’s about how likely you are to pay your bills. Bad luck, emergencies, unforeseen circumstances, and overspending can affect people with high incomes as well as low.
- Whether your house is underwater. Thousands of Americans have seen the value of their homes fall to where they are worth less than they cost. It may be keeping you up at night and making it impossible for you to move, but it won’t affect your score as long as you keep making your mortgage payments every month.
- Whether you are on unemployment or public assistance. As long as you keep paying your bills, no one is looking at where the money is coming from.
- How much savings you have. Having a small bank account will not hurt, and having a big one won’t help you. You’re better off using some of the money to pay off your credit card debt. That will help your score and also cut your interest payments. Always pay off the highest-interest-rate cards first.
- Whether you pay your bills in full or have a balance. There is no easy answer here; neither way is 100% correct. Your credit score is based on how much money you owe compared to how much total credit you have. So maxxing out your cards will hurt. But so will not using them at all. The best thing is to make small charges every month and pay them off. Or charge one large item, even if it costs a little in interest payments. Then set an auto-payment for a few days before it is due—so you never, ever pay late.