Do you know what hurts your credit score? We all read about the obvious ones like Closing off old Credit Cards and Opening New Lines of Credit.
Did you know that opening a new line of credit can affect your credit in a negative way for up to ONE YEAR after you open it?
According to an article on MSN Money here is a partial list of Weird Stuff that Hurts your Credit Score.
Opening New Lines of Credit
Making Balance Transfers
Using Limitless Cards
Library fines and other fees
Some of these things are really strange to me. It is not just the basic fact but the reasoning behind some of these things that can make you cringe when you think of what they do to your credit score.
I will talk here about the first two and then then follow up in Part 2 of this post with the other two items.
Opening New Lines of Credit
We all know that opening new lines of credit will affect your credit score. But why should this go on to negatively affect you up to one year later? I think that it is bad enough when you get the first ding and these items need to drop off the ‘dingable’ offenses list after about three months.
Making Balance Transfers
All the PF Bloggers talk about getting those fabulous 0% credit cards to take advantage of balance transfers. I have taken advantage of balance transfers myself from time to time so that I can get a better handle on my credit card debt.
What most people do not realize is that when you do the balance transfers you may be shifting the credit utilization ratio to an unfavorable percentage.
Say you had two cards as follows:
Card One: 23% rate, $2000 balance , $3500 limit
Card Two: 17% rate, $1000 balance, $2000 limit
Your utilization rate would be:
Card One: 57%
Card Two: 50%
Then you applied for a 0% balance transfer but got card Three as follows:
Card Three: 0% rate, $4000 limit.
You transfer Card One and Card Two over to Card three, giving you a utilization rate of 75%.
While the balance transfer made sense for you since you lowered your interest rate it does not make sense for your credit score. The scoring system sees that you are using 75% of one card and the other two are not being used. This sends up a red flag somewhere because they would rather see that $3000 balance spread out over the three cards than all on one card.
Strange but true!
Come back to read Part 2 of 2 where I talk about the next two items on the list.
Interesting post with some good insights. I never realized that part about the balance transfers. That needs some further looking into. thanks!
I am stuck in that trap right now. My credit was real bad in the past. I use my card to run Adwords campaigns and pay it off every two weeks because my credit limit is so low. So it depends when they hit my report.
@ Peter:
Well now you know….so just be careful.
@ Stephan:
As long as you keep paying it on time you will start to see the rewards in the future so just hang in there.
Interesting reading and good points. I had no idea transferring balances hurt your credit score. I get a lot of those types of offers in the mail. Another thing that hurts your score is maxing out your credit limit on any and/or all of your cards. A low charged balance to credit amount available will help your credit score.
Thanks for the advice. I remember when I first opened up my credit. The first thing I purchased through my credit was a piece of jury.
Some great points so many people are confused about hurts and doesn’t hurt a credit score.
KG’s last blog post..15 Credit Tips