5 Things That Wont Hurt Your Credit Score
For most people, the simplest method to sort the relevant from the irrelevant is to memorize the formula that credit reporting agencies use to calculate credit scores for consumers. In brief, the credit score is calculated using a consumer’s credit histories, the length of those same credit histories, the kinds of credit that the consumer is using, and recent inquiries made about his or her credit score. Failing to influence at least one of these considerations means that an event is irrelevant to the calculation of credit scores, though it is important to note that this is not the same as irrelevant to the chances of securing a loan.
Based on this information, here are some things that cannot hurt the credit score, no matter what common assumptions might say:
1. Debit Cards
Debit cards provide much the same convenience as credit cards to their users. For example, debit cards can be used to replace cash, shop online, and even come with similar protections against fraud. However, since debit cards draw on existing bank balances rather than existing lines of credit, using them has no impact on the credit score. In short, debit cards are an excellent tool for people interested in controlling their spending, but their usage cannot help them repair their credit scores.
2. Reduced Income
It might be interesting to note that even though reduced income can reduce an applicant’s chances of securing a loan, it has no impact on his or her credit score. This is because reduced income affects the debt to income ratio, which is one of the most important factors that lenders consider other than the credit score. Of course, reduced income also means a reduced spending budget, meaning that it makes it harder for people to meet their outstanding debt obligations. However, even then, those are indirect consequences, meaning that they are irrelevant to the calculation of credit scores.
One reason that people mistake a rejection on a loan application for something detrimental to their credit score might be because the act of submitting an application can sometimes cause a hit to the same. In short, multiple inquiries about a consumer’s credit score within a short time period can cause said metric to fall because it suggests that said consumer is rushing to secure credit for an urgent need, which is rarely a good sign. That said, consumers are entitled to receive free copies of their credit reports on an annual basis, which is useful if they are interested in identifying the problem areas that need to be fixed before their credit scores can recover.
4. Going on Hiatus
Choosing to stop using credit for a short period of time can help consumers reduce their outstanding balances and bolster their finances. Better still, it has no impact on credit scores unless consumers take the drastic step of either closing their accounts or having them closed altogether. This is because closing the account removes its record of transaction from consideration, which can have devastating effects on at least two of the factors used to calculate credit scores.
5. Getting Married
Getting married has no impact on the consumer’s personal credit score, though it can influence his or her chances of securing a joint loan. It is important to note that joint credit can affect the credit scores of both spouses because both are considered responsible, but the same is not true of debt held by only one of the spouses.