Know Your Credit Score: New Credit Inquiries

credit mix

In the final post of this five-part series, we cover your new credit inquiries and how hard checks and softs checks will affect your score differently.

So far in this series, we’ve covered how your amounts owed, payment history, credit mix, and the length of your credit history can impact your FICO Score. Today, we’re covering the final category of info that makes up your score: your new credit inquiries.

Let’s get started!

What is a credit inquiry?

Basically, a credit inquiry occurs anytime a request is made to access your credit report. If you request a copy of your report or you apply for a loan, both will result in credit inquiries noted on the report itself. Credit inquiries are also sometimes referred to as “credit pulls.”

Your new credit inquiries and your credit mix are the least important parts of your score as each only makes up 10 percent of your total. For comparison, your payment history and your amounts owed combine to make up 65 percent of your score.

But that doesn’t mean that your credit inquiries aren’t important. When there are so few factors making up your score, everything is important. And the most important thing to know when it comes to credit inquiries is that not all kinds of inquiries are created equal.

“There are two types of credit inquiries: soft inquiries and hard inquiries,” says attorney Stephen Lesavich, Ph.D., (@SLesavich), best-selling author of The Plastic Effect. “Soft inquiries do not affect your credit score. Hard inquiries have a direct effect on your credit score.”

Here’s why soft inquiries won’t affect your score.

The basic point of a tracking new credit inquiries is so that lenders know when you are applying for a new loan or credit card. If they see a bunch of recent inquiries, it could mean that you’re desperate for more credit, which means that you’re a higher lending risk.

But not all credit inquiries come about from loan applications, which is why soft inquiries don’t affect your score.

According to Lesavich, “Soft inquiries or soft pulls include such events as a person checking their own credit score and the creation of list inquiries by credit card companies, mortgage companies, etc., to create lists of pre-approved applicants”

“Credit card companies routinely buy lists of potential customers from the three major credit reporting bureaus. The credit card companies use the lists and other demographic information to target individuals that meet a desired credit score level, income level, or other desired threshold criteria.

“Typically, the individuals on the lists are then targeted in a mass mailing with a paper application or an application sent electronically (e.g., via e-mail).  Such lists are created with soft pulls that do not affect anyone’s credit scores,” he says.

When you check your own report, you can access a full copy and still have the check be recorded as a soft inquiry. On the other hand, when a credit card runs a soft check on your credit, they won’t get all the same information that they’d get with a hard check.

If it helps, you can think of hard checks like reading a novel, while soft checks are like reading Cliff’s Notes instead.

“A hard inquiry directly affects your credit score and usually causes it to go down,” says Lesavich.

Why do hard inquiries lower your credit score? 

Hard inquiries are most commonly done when a lender or a credit card company is reviewing your loan application. The lender wants to view your history of using credit, making payments, maintaining low balances, etc.

So why do these inquiries cause your score to go down?

According to Lesavich, “Credit score scoring rules consider anyone applying for new credit (e.g., a new credit card, loan, or mortgage) to be incurring additional debt. That increases the financial risk associated with extending additional credit or lending money to that person.”

“Numerous hard inquiries are also viewed as a potential indicator that a person is attempting to expand his/her debt limits, or may be experiencing financial problems, both of which increase the risk that the person may not be able to pay back any additional money lent to him/her,” he says.

Lesavich also points out that personal loan and credit card applications are far from the only time that hard credit pulls are made:

“Did you know that other common activities also result in hard inquiries that can affect your credit score? Some of these are: getting a new cell phone or changing your cell phone carrier; connecting utilities such as electricity, natural gas, or cable television; switching to a new utility provider; opening a new bank account; opening a trading or retirement account with a broker; signing a lease to rent an apartment; applying for a job and going through a divorce.  Even though most of these entities do not report payments to a credit reporting bureau they still may do a hard inquiry on you before they provide you with the desired goods or services.”

There are actually certain types of loans that won’t result in a hard credit check. Most often, these are bad credit loans, and certain types of them won’t check your ability to repay at all. These are no credit check loans, a category of products that includes payday loans and title loans. These types of loans can be very dangerous and can trap borrowers into a cycle of predatory debt. If you’re going to apply for a bad credit loan, you might want to check out a “soft credit check” loan instead.

While the effect on your score from hard credit inquiries is usually minimal, you should also remember that multiple inquiries within a short period of time can end up lowering your score quite a bit. And as Lesavich puts it, those inquiries could  “result in you either being placed in a higher risk category for which you will pay a higher interest rate, or having your mortgage or loan application denied.”

“Hard pulls remain on your credit report for 2 years,” he says. “However, your credit scores are typically only impacted for 12 months after the hard pull.  Each hard pull may lower your credit score by three to five points.”

How to shop for a loan with minimal effect on your score.

“If you are planning to apply for a mortgage or a loan for a large purchase (e.g., automobile, boat, motorcycle, etc.) in the next one to two years,” says Lesavich, “you should try to limit any activities that result in multiple hard inquiries.”

Luckily, Lesavich has some great pieces of advice for how to do this. First, he says that you should find out how many inquiries are involved with each application:

“If you are applying for new credit, such as financing for a new car, truck, motorcycle, boat, etc. be aware of how the hard inquiries are conducted.”

“For example, if you want to finance a car with a new loan, a first dealer may offer you three different financing options.  You visit another dealer and they also offer you three more different financing options.  Or your visit one dealer and you are offered six different financing options.   Are the six different financing options six hard pulls or just one hard pull?  It depends.”

Next, he says that you should try and pack your inquiries into as short a span as possible:

“Most credit scoring systems count all inquiries for the same purpose (e.g., obtaining a loan for an automobile, etc.) within a given period of time, usually around 14 days, as a single hard pull inquiry.

“So if you visited the two dealers within 14 days each with three financing options or the one dealer with six financing options, you would likely only have one hard pull recorded on your credit report.

“However, if you visited the two dealers 30+ days apart, you may have more than one hard pull on your credit, one or more from each of the two dealers.”

This practice is referred to as “bundling” and it exists to encourage people to shop for credit more wisely. Lastly, Lesavich says that you should check how exactly these pulls are being reported:

“Be sure to ask how the credit inquiries (i.e., hard pulls) are conducted and reported to the credit reporting bureaus any time you are considering financing options.

“If you are shopping for a loan on the Internet on a site that provides comparative financing from multiple parties or multiple financing options, make sure you carefully read the Terms and Conditions and understand how the hard pulls are conducted and reported before conduct your search.”

Taking the time to fully read your contract is actually very good advice for any situation. But when it comes to protecting your credit score, it’s advice you should definitely take to heart.

Expand your credit knowledge by checking out these recent credit-related posts:

What kinds of questions do you have about your credit score? We want to know! You can email us or you can find us on Facebook and Twitter

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

Stephen Lesavich, Ph.D., JD, (@SLesavich) is an attorney, credit card expert, award-winning and best-selling author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards”.

Know Your Credit Score: Length of Credit History

Length of Credit History

In this five-part series, we’re breaking down the different categories that make up your credit score. Today we’re talking about Length of Credit History.

The length of your credit history is pretty self-explanatory: it measures how long you’ve been using credit. Lenders like to know this because, for the most part, the longer you’ve been using credit, the more reliable a borrower you will be.

It’s not like this is a major factor in your score. In fact, it only makes up 15 percent of your total. Compare that to your payment history (35 percent) and your amounts owed (30 percent), which together make up a whopping 65 percent your overall score.

But just because the length of your credit history is a smaller factor, that doesn’t mean it’s not important. (Hot tip: there are only five factors that make up your credit score, so all of them are pretty important.)

Here’s what you need to know.

How does the length of your credit history work?

According to attorney Stephen Lesavich, Ph.D., (@SLesavich), best-selling author of The Plastic Effect, the length of your credit history includes three basic parts:

  1. The dates you opened each of your credit accounts.”
  2. “The time that has elapsed since the last activity on each account.”
  3. The specific type of credit accounts opened (e.g., credit card, loans, etc.).”

But how are all of these factors used to calculate this portion of your score? Well, there’s a couple of different ways.

First of all, you have to have at least some kind of recent activity.

“To have this factor counted in the calculation of your credit scores you need to have activity on at least one of your accounts the past six months that is reported to a credit reporting bureau,” says Lesavich.

He adds that “The length of credit history factor is determined with the ages of your newest and oldest accounts, along with the average age of all your accounts.”

And what about accounts that you’ve had in the past but that you’ve since closed out?

It depends on another factor: your payment history.

According to Lesavich, “Closed accounts in which all payments were paid on time remain on your credit report for 10 years from the date of last payment or the date of closure.”

Meanwhile, he says that “Closed accounts with late payments remain on your credit report for 7 years from the date of the first late payment.”

You’ll need six months of credit-use to establish a credit score.

One of the important things to remember about the length of your credit history is that, without it, you cannot actually have a credit score.

Even though your credit history is only 15 percent of your score, the company that’s making the calculation (likely FICO or one of the three credit bureaus) needs info from all five categories to create your score in the first place.

And remember, it takes a minimum of six months to establish a viable credit history.

“If a consumer is trying to establish credit and obtained a single credit card 3 months ago, with no other loans, then he/she would not have a credit score because there would be no length of history component to use in the credit score calculation,” says Lesavich.

Your score could also be impacted if you’ve gone a long time without using any credit.

“If a consumer has not used any of their credit accounts for a long time period, such as several years, because they are paying cash for everything and/or they have paid off everything,” says Lesavich, “then such a consumer also would not have a credit score because there would be no length of history component to use in the credit score calculation. This will hurt such a consumer because if they need to borrow money they will be deemed to have ‘no credit.’”

So make sure that you’re staying active on the credit accounts that you already have open. Make your payments, and make them on time!

And if you’ve never used credit before, then it might be a good idea to apply for a secured credit card. These are cards that use a cash deposit to establish your credit limit and to serve as collateral.

You can usually get one of these without a credit check and many secured credit card companies report payment information to the credit bureaus. They can be a great way to establish your credit history.

Closing an old credit account? Not so fast.

“Be careful closing your oldest account or credit card,” says Lesavich. “If you do so you will likely lower your credit score at some point.”

Confused? Let him explain:

“For example, assume the consumer has three credit cards and no other loans.  The credit card accounts were opened 15, three and two years ago.

“The consumer decides to close the credit card account opened 15 years ago because the interest rate is too high, they no longer use the card, they are going to transfer the balance to a zero interest card, etc.

The consumer then has an “oldest account” of three years and not 15 years.”

You see what happened there? By closing their oldest account, that (hypothetical) person sacrificed all that credit history that they had built up with it.

Now, one of the dangers of keeping old credit lines open is that you might be tempted to use them, which only put you further into debt! That’s why, if you keep the account open, you should make sure you don’t have easy access to it.

Closing an old card might also affect another important factor of your score, your credit utilization, which is a major part of your “amounts owed.”

“Credit utilization is a ratio of how much debt you owe to how much credit you have available to you,” says Lesavich. A low ratio, i.e., not much debt but a lot of available credit, is considered most desirable. Credit utilization scores are typically calculated in two parts, using two different calculations. If your credit utilization score for either part exceeds a pre-determined threshold, your credit score will go down.”

According to Lesavich, the “first calculation is done for an individual credit utilization score that is calculated separately for each of your credit cards,” while the “second calculation is done for an aggregate credit utilization score that is calculated for your total balances on all your credit cards against your total credit limits for all cards.”

So here’s how it breaks down: closing an old credit card will reduce the total amount of credit you have available to you, which will increase the ratio for your aggregate credit utilization and potentially lower your score.

What can you do to improve the length of your credit history?

This might come as a shock to you, but the best way to improve your credit history is to keep using credit.

The longer you keep making payments on your loans and credit cards–as well as opening new accounts, when appropriate–the longer your credit history will become and the more it will help your score.

Of course, if you’re routinely making late payments and overdrawing your accounts, then that longer credit history won’t really help your score. So don’t do that. The same goes for taking out bad credit loans and no credit check loans. Those lenders don’t report payment information to the credit bureaus, so they won’t do your score any good.

You should also try to keep your old accounts open, especially if you never use them or use them only rarely. While it might seem tempting to close those old cards when you open up new ones, it can have the opposite effect.

Think about it the same way you would think about dating. Whose advice are you going to trust? The person who just got into a relationship three months ago, or the person who’s been happily married for 15 years?

When you think about it like that, the answer is pretty obvious.

What do you want to know about your credit score? We want to hear from you! You can email us or you can find us on Facebook and Twitter

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

Stephen Lesavich, Ph.D., JD, (@SLesavich) is an attorney, credit card expert, award-winning and best-selling author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards”.

Know Your Credit Score: Credit Mix

credit mix

Your credit score is important. It can increase your buying power, your financial security and keep you and your family safe from predatory payday loans and title loans.

That’s why we’re doing this Know Your Credit Score series, where we break down the five categories of information that make up your score. You can check out our previous posts on amounts owed and payment history. Today we’re going to talk about your “Credit Mix.”

Just what the heck is a credit mix anyway?

Your credit mix is essentially how many different kinds of credit you have. We’ll let certified financial educator Maggie Germano (@MaggieGermano) explain:

“Lenders like to see several (and varying) accounts on your report because it shows that other lenders have trusted you with credit. However, this is the least important factor for your credit score, so don’t rush to open a bunch of new credit accounts.”

So what’s your credit mix really worth?

As Germano mentioned, your credit mix is the least important part of your credit score. You might think you can just ignore it because of its lesser significance. But you’d be wrong!

“Credit mix makes up 10 percent of your FICO score,” says nationally recognized Credit Coach Jeanne Kelly (@CreditScoop). “That may not seem like a big part of your score, but every point does matter.”

So now that we know what your credit mix is and how much of your score it’s worth, how can you start building it up?

Here’s how you can improve your credit mix.

This advice from our experts will help you get 100 percent out of the 10 percent that is your credit mix. (Don’t think too hard about the math on that one.)

“If you only have student loans, getting a credit card would help mix up your accounts,” Germano advised. “However, if you struggle with overusing your credit cards, it’s not in your best interest to get one just to add a different type of credit account. Unless you absolutely need something like a personal loan, mortgage, or car loan, I would not recommend opening new credit accounts just to mix up your types of accounts.”

“You do not need to go out and get a home mortgage or auto loan if you do not need it to add to your mix,” Kelly reiterated. “You can always get a small personal loan if you need to purchase an item instead of another credit card.”

Alayna Pehrson, digital marketing strategist for @BestCompanyUSA, offered her own strategy for fixing the mix:

“To improve your credit mix, you can start by effectively managing numerous credit card accounts as well as installment loans. Although opening new credit card accounts may lower your score at first, successfully having and using multiple credit cards will benefit you as time goes on.

“Installment loans cover anything from mortgages to student/personal loans and auto loans as well. Having these loans will demonstrate your ability to efficiently diversify your credit usage/habits.

“Even though keeping your credit mix at a good level will benefit your score, it’s good to keep in mind that your credit mix makes up only 10 percent of your overall credit score, so it’s something that shouldn’t be overly stressed about.”

Let’s review.

As Pehrson said, you should worry the least about your credit mix, as it’s much less important to your credit score than making all of your payments on time and paying down your debt.

But when it comes to getting a loan, especially a longer-term loan, you’ll want to have the lowest interest rates possible. And that means the best credit score possible.

Otherwise, you’ll be stuck with bad credit loans and no credit check loans, which have much higher rates and can even leave you stuck in a cycle of debt.

Your credit mix might not be as important as your payment history or your amounts owed, it’s certainly worth keeping an eye on.

By the time we’re done with this series, you’ll be ready to make your credit score the best it’s ever been! Check back next week when we cover recent credit inquiries!

In the meantime, stay informed by checking out these recent credit-related posts:

What kinds of questions do you have about your credit score? Please let us know! You can email us or you can find us on Facebook and Twitter

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

CarlaDearing-2_2015-1Maggie Germano (@MaggieGermano) is a Certified Financial Education Instructor and financial coach for women. Her mission is to give women the support and tools that they need to take control of their money, break the taboo of discussing debt and income, and achieve their goals and dreams. She does this through one-on-one financial coaching, monthly Money Circle gatherings, her weekly Money Monday newsletter, and speaking engagements. To learn more, or to schedule a free discovery call, visit
Jeanne Kelly (@CreditScoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out to get the credit help you need!
Alayna Pehrson (LinkedIn) is a Digital Marketing Strategist and Credit Repair Specialist at, (@BestCompanyUSA).

Know Your Credit Score: Payment History

payment history

In this five-part series, we’re breaking down the five different categories that make up your credit score. Today we’re talking about Payment History.

It’s pretty obvious that missing a payment on your credit card isn’t going to be good for your credit. But exactly how “not good” would it be? Just a little not good? Or like super duper not good?

Well, as it turns out, missing a payment or making it late could have a pretty big impact on your score. That’s because your payment history is the single largest factor in determining your score.

What is your payment history? 

“Your payment history includes your on-time, late payment and missed or non-payment information,” says attorney Stephen Lesavich, PHD, (@SLesavich), best-selling author of The Plastic Effect.

When a lender is assessing your application for a loan or a credit card, it’s very important to them that you make your payments on time.

So if you have a history missing your payments or making them late, that sends lenders a signal that you’re likely to default on your loan altogether.

How important is your payment history?

Your payment history is one of the most important factors in your credit rating. It accounts for 35 percent of your overall credit score, more than any other individual factor.

(However, it must be said that your Amounts Owed, which we covered last week, are also very important, accounting for 30 percent of your overall score.)

With over a third of your score dependent on you making your payments, it’s safe to say that making your payments late is a bad idea.

“Making late payments or missing payments if the quickest way to have your credit score drop significantly,” says Lesavich

What’s included in your payment history?

“Payment history typically includes payment information for credit cards, mortgages, loans, retail accounts and lines of credit,” says Lesavich, who also lays out what those different categories include:

  • The loans include student loans, auto loans, other loans, etc. that are paid in installments.
  • The retail accounts include credit cards and lines of credit from department stores, etc.
  • The lines of credit include home equity lines of credit and other lines of credit.”

Basically, if you’ve borrowed money in any form, it’s payments are going to be reported to the credit bureaus and will factor into your score.

With one notable exception…

What’s not included in your payment history?

Notice that he didn’t include short-term bad credit loans, such as payday loans and title loans. That’s because the vast majority of these lenders do not report your payment information to the credit bureaus.

While this means that missing a payment on a payday and title loan might not hurt your score, it also means that making your payments on-time won’t help your score either. Plus, if the lender decides to send your unpaid debt to a debt collection agency, the agency likely will report the debt.

“Collection account information remains on your credit report for 7 years from the date the first account became past due causing the account’s placement with a collection agency,” says Lesavich.

That’s true for all kinds of debts, whether they’re from no credit check loans, personal installment loans, a credit card, etc. If you never pay the debt, and it gets sent to collections, the account will be noted on your score.

But since most payday and title loans aren’t reported to the credit bureaus in the first place, they can basically only hurt your credit score. They can’t ever help it.

(And if you think that’s the only issue with these predatory short-term loans, think again.)

What about payments that aren’t debt-related?

Sure, paying down personal loans and credit cards accounts for a lot of the payments you’re making each month. But it’s certainly not all of them.

So what about your payments on things like rent and utility bills? Are those reported to the credit bureaus?

According to Lesavich, the answer is mostly no:

“Most landlords for renters and service providers such as electric, cable and cell phones providers do not report payments to the credit reporting bureaus.”

“However, some landlords and service providers do such reporting.  So it is always wise to check and determine if your landlord or any of your service providers do report payment history.”

To learn more about how your credit score your utility payments are related, check out our blog post: How Bad Credit Can Affect Your Utilities.

How does your payment history impact in your score?

It’s a safe bet that making a payment late will negatively affect your credit score. But there’s no way to tell how bad it will affect it as there a lot of other factors at play.

According to Lesavich, the impact of a late payment on your score will depend on:

  • “Your current credit score
  • “Amount of days the payment was late
  • “How much money was owed for the payment
  • “Total number of times you made a late payment
  • “When the late payment occurred with respect to the when the credit score was calculated.”

One of the reasons it can be had to determine how much a late payment will affect your credit score is that you actually have multiple scores.

Each of the three major credit bureaus—Experian, TransUnion, and Equifax—maintains their own version of your credit report. Your exact score depends on which score is used to create your credit score.

And that’s not all. It can depend on which specific formula is used as well.

“It is important to note, says Lesavich, “that the credit reporting bureaus, etc. have all developed their own proprietary credit scoring models.  Such proprietary credit scoring models are never fully published or disclosed.”

“As a result, any discussion of credit scores is always a best guess estimate. It can be used to predict a reasonable range to approximate your credit score, but your own credit  score may vary with a late payment.”

Lesavich does, however, offer the following example of how a late payment could affect your score:

“A single 30-day late payment typically reduces a person’s credit score by 60-110 points (e.g., ranging from 60-80 points if your credit score is in the 600s, to about 80-110 points if your credit score is in the 700s, etc.).”

That’s a lot! But notice that he mentioned a payment that was 30 days late. Generally speaking, most lenders have a “grace period” after a due date is missed before they will report it.

So if you’ve missed a payment by a few days, go ahead and make that payment ASAP. It could mean a huge difference to your score.

“Late payment or missed payment information will typically remain on your credit report for seven years,” says Lesavich. Read more in our blog post How One Late Payment Can Affect Your Credit.

What should you do if you’ve made a late payment?

Lesavich has some sage words of advice regarding what to do if you’ve missed a payment:

“Everybody can and typically does face a life situation (e.g., illness, accident, birth, death, etc.) in which a late payment is made.

“If you have not made a late payment in the past, or have done so very infrequently, check with your credit card provider, bank or loan provider and explain your situation.  They may not report the late payment to the credit reporting bureaus.”

Remember, a credit score is dynamic. It can change, and it frequently does change as life circumstances change. If you make a late payment or miss a payment and it lowers your credit score, do not get discouraged.

Instead, view the situation from an empowered position, which gives you an opportunity to take control and initiate change.”

“Then, make a plan with action steps you can accomplish to change to your credit card purchasing and debt management practices by making all your payments on-time and not make any late payment or miss any payments.”

We couldn’t agree more. Check back with Know Your Credit Score next week when we’ll be writing about your Credit Mix!

What kinds of questions do you have about your credit score? We want to hear from you! You can email us or you can find us on Facebook and Twitter

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

Stephen Lesavich, PhD, JD, (@SLesavich) is an attorney, credit card expert, award-winning and best-selling author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards”.

Know Your Credit Score: Amounts Owed

Know Your Credit Score: Amounts Owed

In this five-part blog series, we’ll break down the different categories of information that make up your credit score, starting with your “amounts owed”.

Your credit score: It’s important. It’s how lenders decide if they’re going to lend you money, and at what rates. And remaining in the dark about your score is the perfect way to end up at the mercy of predatory payday loans and title loans.

So how is your credit score determined? As it turns out, there are five categories of information that go into it: payment history, amounts owed, length of credit history, credit mix, and recent credit inquiries. We’re going through them one by one.

Today, we’re talking about your “amounts owed”, which makes up 30 percent of your score.

What is “amounts owed”?

Simply put, your “amounts owed” is, well, the amount of money that owe on your various debts, including personal loans, lines of credit, and credit cards. In order to figure out your amounts owed, all you need to do it tally up all the outstanding balances on your loans and credit cards.

With amounts owed, owing less debt is generally considered a better thing than owing more. The only exception to this is if you never use any debt at all: no installment loans, no credit cards, nothing. That can leave you with a “thin” credit history that will hurt your score.

Beyond keeping your debts to a minimum–avoiding large outstanding balances and/or paying down the balances you have already built up–there’s another factor with your amounts owed that needs to be reckoned with.

It’s your credit utilization.

What is credit utilization?

Your credit utilization refers to the percentage of your available credit that you’re using. This won’t matter with your loans, which are issued to you as a single lump sum, but it’ll matter big time with your credit cards.

With credit cards, you are given a credit limit that you can borrow up to. The more money you borrow, the more of your available credit you’re using, and the higher your credit utilization ratio rises.

Credit utilization is also where your amounts owed can start to get a bit tricky.

30 for (keeping it under) 30

“Lenders want you to keep your utilization rate at or below 30 percent,” certified financial educator Maggie Germano (@MaggieGermano) told us. “This means that you should keep your balances below 30 percent of your actual credit limit.”

“Say you only have one credit card with a limit of $1,000, but every month you end up spending at least $750. That means that your credit card utilization is typically at 75 percent. One way to improve this is to make sure you pay off your balances in full each month.”

Paying down your balances is always a good idea because it also keeps you from accruing interest on the purchases you’ve made. The less you have to spend in interest, the more money you’ll have free to put towards things like emergency funds, 401k’s, or sweet dirt bikes.

“If that’s harder for you, consider asking for a credit limit increase,” says Germano. “This will only help you if you don’t increase your spending, though! Keep your spending down, even if your limit is higher.”

Let’s use Maggie’s previous example: If you spend $750 against a $1,000 limit, you’re utilizing 75 percent of your available credit. But if you get your limit raised to $2,000, then that $750 is only utilizing 37.5 percent of your available credit. You’ve improved your credit utilization without changing your spending habits at all!

Like we said, it gets kind of tricky

Seven percent and zero percent

If you are committed to paying down your credit card and loan balances, you will see improvements in your credit score. (This is assuming that you don’t start paying all your bills late or hurting your score in some other way.) And once you get your open balances to a 30 percent utilization rate, that should help your score even more.

But if utilizing 30 percent of your available credit is good, is there a more specific number that’s ideal? According to nationally recognized credit expert Jeanne Kelly (@CreditScoop) When you review people who have 800 scores, they use only seven percent of what is available to them.”

For people who have lots of credit card debt, a seven percent utilization might sound pretty impossible to achieve, but Kelly has additional advice to help you get there:

“If you get balance transfer credit cards to help lower the debt with a 0 percent interest rate, that is the time to truly focus on paying the debt down. Do not close the other account that you just transferred it from. But remember the goal is to not use the cards to build up more debt but to lower it.”

Keeping your old accounts open helps your amounts owed because it raises your total available credit. Credit utilization is judged across all your different cards, so having one old card with a completely open credit line can (and likely will) positively affect your score.

Paying down your debt

If you are able to qualify for those zero percent balance transfers, it’s best to combine them with a solid plan to pay down your debt. The more debt you can pay down while you’re interest-free, the better.

So what’s the best way to do it? There are tons of debt repayment strategies out there, but two of the best are the Debt Snowball and the Debt Avalanche.

With the Debt Snowball method, you order all your debts from the smallest balance to the largest. You put all your extra debt repayment funds towards the debt with the lowest balance, making only the minimum payments on all your other debts.

Once that first debt is paid off, you take all those funds and you put them towards the next debt, working your way up from smallest balance to largest.

Plus, every time you pay a debt off, you add its monthly minimum payment towards your future debts. This way, the money you’re putting towards each subsequent debt gets larger and larger, just like a snowball rolling down the hill.

The Debt Avalanche is structured in much the same way, only you order your debts from the highest interest rate to the lowest, then pay off the debt with the highest rate first.

To learn more about the Debt Snowball and Debt Avalanche, check out these blog posts:

What else can you do?

When it comes to your amounts owed, the simplest advice is also the best: pay down your debts as fast as you can, and then try to avoid taking out lots of debt in the future. The more you stay away from high-interest bad credit loans and no credit check loans, the better!

Depending on your situation, a debt consolidation loan might also be a good option to help you lower your interest rates and pay down debt faster.

In regards to your credit utilization, Alayna Pehrson, digital marketing strategist for, (@BestCompanyUSA), has a great strategy for keeping your ratio at 30 percent or below:

“One way to improve your credit utilization is by keeping track of the amounts you charge your credit card. Going over a 30 percent credit utilization will negatively affect your credit score, therefore, if you set up a way to track how much you’re charging to the card, then it’ll be easier to monitor your utilization and keep it low. You can keep track by setting balance notifications or by creating your own credit journal list.”

Pehrson also warns that a credit line increase could result in a hard inquiry showing up on your report. So while it might help your score in the long run, it might cause a smaller rise, or even a small dip, in the short-term.

Since your amounts owed is one of the two largest factors of your credit report–fixing your credit utilization is a great way to get your credit score up.

Tune in next time, to learn about payment history!

What kinds of questions do you have about your credit score? Let us know! You can email usor you can find us on Twitter at @OppLoans.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

CarlaDearing-2_2015-1Maggie Germano (@MaggieGermano) is a Certified Financial Education Instructor and financial coach for women. Her mission is to give women the support and tools that they need to take control of their money, break the taboo of discussing debt and income, and achieve their goals and dreams. She does this through one-on-one financial coaching, monthly Money Circle gatherings, her weekly Money Monday newsletter, and speaking engagements. To learn more, or to schedule a free discovery call, visit
Jeanne Kelly (@creditscoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out her site to get the credit help you need!
Alayna Pehrson is a Digital Marketing Strategist and Credit Repair Specialist at (@BestCompanyUSA).

Opening a Credit Card for Points: Is it Worth it?

By Andrew Tavin

The first article in our “Is it Worth It?” series tackles the tough topic of credit card points. Are they worth it?

Credit cards, when used properly, can be a valuable tool for building your financial well-being. Aside from the convenience of credit cards offer, using no more than one-third of your credit and paying off the bill in full every month is one of the most reliable ways to build your credit score.

That does not mean using a credit card comes without risks. Given that credit cards lack the tangibility of cash, if you are not careful, you can put yourself into significant debt. That is why you must master responsible credit card practices if you are going to use them.

Once you have mastered regular credit card use, you may want to try and earn some points so you can go for the credit card high score. In other words: opening credit cards with rewards programs in an attempt to save money overall, or just earn benefits you might not receive otherwise.

But what are these high-level credit card strategies? And are they even worth it?

The pros

It will take some research to determine which cards will maximize your rewards, but once you have done that,you can use those cards responsibly as part of the good habits you have already established.

“If you are in good standing and are making timely monthly payments on all outstanding cards, opening a new credit card account with rewards points that best suits your financial goals (i.e. travel, cash-back deals) may be a good option,” says Beverly Friedmann, who works for consumer review site ReviewingThis. “There are certainly a myriad of options for credit card accounts to open that can save you up to thousands per year and/or different types of travel incentives (i.e. mileage points and free hotel stays).”

Opening new cards can eventually offer a boost to your credit score — as long as you pay them off in full each month.

“Your debt utilization ratio will lower by increasing your overall credit limit, which will impact your credit score in a positive way,” explains Leslie H. Tayne Esq., founder and head attorney at debt relief services firm Tayne Law Group. “Make sure to not take on more debt, however, and pay off your balance in full each month to fully take advantage of this benefit of having a greater credit limit.”

Used properly, the right credit cards will not just save you money on big occasional purchases, but can actually make your regular, everyday expenses more affordable, as well. Take this personal example from Josh Hastings, founder of Money Life Wax: “My wife and I use a groceries and eating out only credit card to earn points. It is easy to track our monthly spending on food, we have a goal of staying below $350 each month, and we use the points to eat out! We do the same thing with a gas credit card too; we just always pay it off each month!”

The cons

Some experts are less enthusiastic about the idea of opening new credit cards to use for rewards, including financial expert Debbi King, who says there are two cons to opening a new credit card for the perks:

One, opening a new card will affect the length of credit history portion of your credit score. This factor is based on the length of time all credit accounts have been open. Opening a new card makes that time lower, which will lower your score and will lengthen the time it will take to reach the excellent time frame.

Two, opening a new credit card also adds to the temptation to buy something without the cash to pay for it. When you have credit cards available, you can be tempted to charge an item and pay it off over time instead of using cash. This increases your debt.

Many credit cards also come with additional straightforward costs, says Xavier Epps, founder and CEO of XNE Financial Advising.

“If you want to open new credit cards just for their points, you have to ask yourself if you do not mind taking on extra fees, such as the annual fee,” Epps says.

Finally, you need to be aware that applying for new cards can lead to a temporary mark on your credit score.

“Only apply for a card if you know that you are very likely to be approved for that card,” Tayne urges. “If your credit isn’t the highest and you are working towards increasing your credit score, you could be doing more harm than good, because a hard pull will lower your credit score by a few points.”

The bottom line

No matter what route you choose with your credit card use, the most important thing is maintaining your good credit card habits.

“With any credit card, users must make sure they make their monthly payments on time,” Epps asserts. “If not, they risk paying additional interest, losing money on late fees, and lowering their credit score, which can affect their ability to receive loans or other credit cards. Users can minimize these risks by maintaining a credit card utilization of 20% to 30%. Be sure the purchases you make are purchases you can pay for at a later date.”

It can be easy to get caught up in the excitement of opening new cards. Just be sure to always keep a level head.

Does a Late Rent Payment Affect Your Credit?

By Carly Rae Zent

Paying rent at the same time each month can be a challenge, especially if your payday schedule doesn’t align with your landlord’s due date.

Rent is usually a top priority bill for people to pay each month. If the rent isn’t paid, they are taking a chance at not having a roof over their heads for much longer.

Unfortunately, our paycheck schedules don’t always align with the date that rent is due. If your paycheck simply doesn’t come in until the third of the month and rent is due on the first, sometimes it’s just going to be late. Many people would rather not have to deal with taking out a risky payday loan to get through those few days.

Sometimes people get into tighter situations — if an emergency medical bill or some other unexpected expense comes up, people can find themselves behind on rent payments by a month or more, putting their housing, and possibly credit, at risk.

Do landlords report late rent?

The short answer: not always. It’s generally optional for landlords to report late rent. And in order for them to report late rent themselves, they generally need to be a member of a credit reporting bureau, which include Equifax, Experian, and TransUnion. Because of this, it’s not that common for late rent to appear on credit scores. If you want to be sure, you can go ahead and ask your individual landlord if they do report late rent payments. It’s possible many will say no or say they don’t report them unless late payments are a consistent problem or extremely late. Landlords are people too, so they may react differently in different situations.

There are, however, some caveats to note: If your landlord uses certain kinds of rent payment services, they may automatically report rent to credit bureaus as part of the service. If you need more information about this, this article by Experian has a list of several payment services that offer a credit reporting service.

You’re also more likely to be vulnerable to your landlord reporting late rent if you’re renting from a property management company or another corporate entity. They might have their own policies they follow regarding late rent without taking individual situations into account.

It’s important to note that if you build up debt with a landlord and the debt is sold to a collection agency, the debt will then appear on your credit report, even if the landlord didn’t previously report your payments. A large amount of debt appearing at once could be a major ding to your credit score.

Another important note: Payments should typically be 30 days late before they are reported, so even if you’re perpetually getting in rent just a couple days late, all you may have to worry about is a few late fees and an irritated landlord – although a situation like that is not going to help your cash flow or your landlord’s willingness to be flexible to your situation. Contact your landlord about their reporting policies to know for sure.

How much will a late rent payment ding my score?

It depends. It’s important to remember that recent late payments affect credit scores the most. Since payment history is a whopping 35% of your credit score, according to FICO, it can have a pretty dramatic impact. However, it’s not anything you can’t recover from with time and timely payments.

It’s important to keep in mind the other consequences of your rental history being made public. Landlords tend to run a credit check before renting to someone. Therefore, if you’ve had previous landlords report your late payments to the credit bureaus, as this rental website article discusses, they will see your past rental payment history. Even if you have an otherwise positive credit score, they might decide to turn you down in favor of someone who has always paid rent on time.

There are various ways late rent payments may be reported. For the most accurate prediction on whether yours will be reported, contact your landlord or property management company.

Paying rent can positively affect your credit, too

There is a positive side to all this: If your rent payments are being reported, then paying rent on time can be a great tool for helping you build up your credit. Remember: With credit, it goes both ways.

Have more questions regarding rent and its impact on your credit or cash flow? These articles may point you in the right direction:

7 Totally Avoidable Ways That College Students Tank Their Credit

Youthful mishaps can have lasting consequences.

Sixty-nine percent of recent college grads damage their credit within two years of finishing school. Why? Because when they enter the real world, many grads get their first taste of real-world finances — and make a few mistakes.

But what about before they graduate? Are there dangers that will tank the credit of students before they even know what credit is?


Simple mishaps like forgetting to pay a credit card bill can have lasting consequences. (They stay on a credit report for seven years.) And these types of dings are completely avoidable, if only students know what to watch for.

Here are seven ways that college students damage their credit — and expert tips on how to steer clear of them.

No. 1: Charging too much on credit cards

Running up a high credit card balance not only comes with big interest payments, but it negatively impacts credit score.

Credit scores are partially determined by the amount of available credit a user has. By carrying a high balance, students risk a high credit utilization rate — the percentage of their total credit limit that they’re currently using.

A good rule of thumb is to stay below 30% utilization of total available credit.

The penalty for high utilization (a lower credit score) can change once a new, lower balance is reported. This means that a negative ding to your credit score can be immediately improved by paying off high balances before the next statement closing date.

Tips from the Pros: Deborah Sweeney, CEO of

It’s very easy to accrue credit card debt. College students will go out to eat with friends, go out to clubs, and head to happy hours. Even buying necessities, like textbooks for classes, adds up! The best thing to do is to budget carefully, charge only what you know you can pay back, and pay off your balance in full each month. If you don’t already have a job, apply for part-time on-campus opportunities or paid internships nearby so you can keep a steady stream of income, even part-time income, coming in on the side.

No. 2: Applying for too many credit cards

Woah—slow down! Do you really need all of those credit cards? Applying for too many, too quickly, can ding your credit score and send a red flag to creditors and affect future lending.

The smart move is to open one credit card and use it responsibly to build a healthy credit history. Opening several credit cards, or applying for multiple cards all at once, suggests that you might have money troubles and is a red flag for lenders.

If you already own multiple credit cards there’s nothing to worry about. Your credit score won’t decrease just because you already have several of them. In fact, having several cards increases total available credit, ups the credit limit, and makes credit utilization lower (hopefully!).

No matter how many credit cards you have, make sure to keep them all paid down. Also, avoid churning credit cards, which is the process of opening and closing several accounts at once, because it looks suspicious to creditors.

Tips from the Pros: Beverly Friedmann, content manager for Reviewing This

If you’re going to apply for your first credit card, it’s important to do diligent research first on factors like interest rates and rewards points. A lot of credit institutions market to students and encourage them to open new cards very quickly without spending time researching any background first. It’s also important to avoid taking on several credit cards at once, as this can be overwhelming and is ultimately unnecessary for students. By applying for one credit card that offers good reward programs and low interest rates and making responsible payments, you can really set yourself up for financial success and improve your credit score.

No. 3: Missing credit card payments

Students have a lot on their plate. Between classes, papers, exams, and clubs, they might lose track of when a credit card payment is due. Unfortunately, a forgotten payment will lower their credit score, even if it’s the first time it’s happened or if it’s a simple mistake. Creditors might be lenient in emergency situations, but more often than not, a missed payment is the responsibility of the account holder.

Don’t be the student with a delinquent or default credit card account. Both delinquency and default are terms that describe the same problem: missing payments. Late payments move an account into delinquent status, while default occurs when a borrower makes consistent late payments and falls behind their repayment obligation. Both can take a serious toll on a student’s credit score.

Students should work with their creditor to prevent these scenarios from occurring. There are systems in place to help borrowers who face financial hardship or other emergency situations.

Tips from the Pros: Beverly Friedmann, content manager for Reviewing This

When students take on credit cards, it’s incredibly important to pay off bills in a timely manner. It’s also important to not place charges or services on credit cards that you know you can’t immediately pay back. By paying off credit card bills to borrowers in a responsive manner, students can begin to build good credit and qualify for other loans and cards in the future. Charging too much on credit cards or missing payments can be extremely detrimental to your credit score, so it’s very important to be responsible with the use of any cards you take on.

No. 4: Missing student loan payments

Just like with credit cards, an unexpected financial emergency, job loss, or simple error could cause a student to fall behind on student loan payments.

It’s important for students to know that loan repayments typically don’t start until after a borrower graduates, drops out, or falls below part-time enrollment. Following a six-month grace period, students should prepare for their loan repayments by budgeting the amount they’ll owe into their monthly expenses.

Beyond a credit score, banks and issuers look at loan payment history when evaluating borrowers on their creditworthiness, risk profile, and future repayment ability. A poor payment history might suggest that the borrower isn’t able to pay their financial obligations. The result? Fewer financial options.

Keep in mind that the same rules of delinquency and default apply to loans as they do to credit cards. In fact, nearly 40% of borrowers are expected to default on their student loans by 2023, according to new data from the Brookings Institute. Missing payments are a slippery slope leading to bad credit scores and should be avoided at all costs.

Tips from the Pros: Beverly Friedmann, content manager for Reviewing This

Making responsible student loan payments can feel challenging and overwhelming, but it’s important to establish a plan with your borrowing institution at a rate that you can afford. As long as you ensure you make monthly payments, you won’t risk lowering your credit score by potentially defaulting on loans or having payments begin to stack up. It’s always advisable to make the highest payments per month you can afford to lower your interest rates by as much as possible.

No. 5: Co-signing a loan or credit card

Co-signing can be a good thing when done right. For instance, parents co-signing an apartment for their child with limited credit history will enable the student to get approved as a tenant.

On the other hand, being a co-signer for an untrustworthy friend means that the co-signer is financially liable for the mistakes of the person.

Simply being a co-signer doesn’t mean that your credit score will take a dip. However, if you co-sign for a friends credit card, the charges on credit (even if they’re not delinquent) may affect your credit score by increasing your credit utilization rate.

Tips from the Pros: Justin Lavelle, chief communications officer for

Having a hard time with even starting to build your credit? Maybe have a close family member or friend that you trust and who trusts you to help you by cosigning. This will at least get your credit started.

No. 6: Not paying rent

Will skipping out on a rent payment affect your credit score? Maybe not, but your might suffer other financial consequences. Plus, a positive rental recommendation is out of the question.

By missing rent payments, renters have breached their lease agreement. Some landlords may opt to report the missing payment to a credit agency, and this will drag down the renter’s credit score.
But even if the landlord doesn’t file a report, the renter isn’t off the hook just yet. A landlord may decide to take their negligent tenants to small claims court, where they can be awarded their right to receive rent from a judge.

Tips from the Pros: Beverly Friedmann, content manager for Reviewing This

By making responsible rental payments every month, you help boost your credit score and secure a stable housing situation. Missing rent payments after you’ve signed a lease agreement can be detrimental to your credit score, and it can also result in serious consequences like eviction.

No. 7: Not paying utility bills

Utility bill payments aren’t typically reported to the credit bureaus. This means that in many cases, missed payments won’t be reported to the credit bureaus and thus won’t impact your credit score.

The downside of this is that because payment history typically isn’t reported, on-time payments don’t get reported either — and students won’t get credit for them with the credit bureaus.

If you stop paying a utility bill, don’t assume that utility companies will ignore the overdue account. To the contrary, a utility company will eventually stop reaching out to the account holder and turn the debt over to a debt collector. Once an account goes into collections it will negatively impact a student’s credit score.

Tips from the Pros: Beverly Friedmann, content manager for Reviewing This

It’s always important to be aware of making timely rental and utility payments, especially if you’re living off-campus or on your first lease agreement…. Monthly rental and utility payments should be at the top of your monthly budgeting list.

Bottom Line

These seven mistakes are easily avoidable, but only if you know what to watch for. So be vigilant — don’t let a silly mishap wreck your credit for years to come.


Beverly Friedmann serves as a content manager for the consumer website ReviewingThis. She has a background in digital marketing and sales management and an undergraduate degree in psychology and sociology, with a minor in English literature. On a personal level, she enjoys community service, spending time with friends, yoga, and grew up doing competitive gymnastics.
Justin Lavelle is the chief communications officer for, a leading source of online background checks and contact information. It allows individuals to find more information about people, phone numbers, email addresses, property records, and criminal records in a way that’s fast, easy, and affordable. The company helps people discover, understand, and use public data in their everyday lives.
Deborah Sweeney is the CEO of which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services.

Any college-era credit regrets? Tweet us at @OppUniversity with your advice to help students keep their credit healthy.

5 Money Pits That Will Drain Your Wallet in College

Don’t know where your money went? We do.

It’s a common experience for college students: empty wallet, empty bank account. Maybe it’s the end of the semester. Or maybe it’s just a Monday after a fun-filled weekend. At one point, things were looking pretty good. But somehow, at some point, all that money magically disappeared.

Or did it?

In many cases, student money goes toward a short list of likely suspects. And while this may sound like a problem, it’s actually a good thing: College students who want to tame their spending can easily identify where their money goes and keep a close eye on those expenses.

So what are the main culprits that most often empty the pockets of college students? We asked several money experts. Here’s what they had to say.

No. 1: Impulse Buys

Beverly Friedmann, content manager for Reviewing This

Impulse spending and purchases happen to the best of us, in college or not. It can be easy to get pressured into buying the latest clothing and must-haves when all your friends seem to be partaking, but smaller purchases quickly add up over time.

College is a perfect time to start practicing budgeting your expenses, even if this just means jotting down a list of how much you have to spend per month and allocating funds accordingly. You don’t have to deprive yourself, but it might be easier to avoid a financial dilemma in the future if you keep track of your expenses to avoid overspending on a whim.

No. 2: Credit Cards

Shaan Patel, founder and CEO of Prep Expert

One of the biggest drains I see on college student accounts are the one-two punches of credit card balance and interest payments. It’s so easy for kids to double down hard on huge purchases with their first major credit lines and then be eaten alive with the resulting fees. That’s why I always recommend for kids to invest in a secured credit card. They’re great to use because instead of getting a credit limit from a faceless company waiting for you to max it out, you personally back your own credit line for as little as $200.

They’re great for handling small, consistent monthly bills. Also, because you provide the money to get them started, there’s more incentive to not go over the limit. Plus, as you make your payments every month to stay under the limit, your credit score will grow without a problem.

No.3: Nights Out

Beverly Friedmann, content manager for Reviewing This

One big drain on student bank accounts happens when too many nights are spent out partying and not enough are spent in studying. Nights out purchasing expensive food and drinks can quickly add up and start to amount to quite a bit of money over the course of the semester, so it’s important to budget wisely. Instead of overspending on nights out, you might think about getting a group of friends together for a fun night in.

When I was in school, we used to host different movie nights and events in dorms that were free of any cost. It’s just as much fun and can be a great way to avoid a financial dilemma down the road.

No. 4: Snacks

Logan Allec, owner of Money Done Right

Stopping by a vending machine between classes for a drink and a snack may not seem too financially irresponsible, but those small purchases made regularly can drain your bank account. [Spending between $2 and $3] for a bottled drink and another $1 for a granola bar can really start adding up, especially if you are making more than one purchase a day. Instead of stopping by the vending machine, make time to go to the grocery store and buy your favorite snacks and drinks for the week. You will be able to get a much better deal, which is money back in your bank account.

No. 5: Wasted Classes 

Jim Anderson, owner of Making College Worth It

Assuming the student is already attending college, I think course selection can waste the most money. Given the need for college to train you for your career, the major courses are important, but don’t forget about electives and general education required courses. GPA boosters [won’t] help you overcome your fear of public speaking or give you the analytical skills, international experience, collaboration skills, and writing skills your future career requires. On the personal side, a personal finance class that isn’t taken may cost you (literally) as you go through life.

Maybe you spent too much on books or housing, but those money mistakes won’t put a lid on your career and future earning potential.

Bottom Line

For many students, college is their first experience with money management. One of the first steps toward a balanced budget? Identifying expenses, cutting costs, and watching out for money pits.


Logan Allec is a CPA, personal finance expert, and owner of the website Money Done Right.  After spending his twenties grinding it out in the corporate world and paying off over $35,000 in student loans, he dropped everything and launched Money Done Right in 2017. His mission is to help everybody — from college students to retirees — make, save, and invest more money.  He currently resides in the Los Angeles area with my wife Caroline and son Hunter. Follow him on Twitter @MoneyDoneRight.
Jim Anderson is the founder of Making College Worth It. After more than 20 years in the IT industry, Anderson ventured into a new direction: college and financial aid planning. He combined his interest and knowledge in personal finance—from a stint as a financial planner in the 90’s—with research needed to find colleges for his oldest three children to start a business that not only addresses the college search process, but the cost of college and ways to reduce that cost. For more than 8 years, Making College Worth It has been helping families find great/affordable college programs that will prepare students for their first job and career.
Beverly Friedmann serves as a content manager and copywriter for the consumer website ReviewingThis, and has a background in digital marketing and sales management. She has an undergraduate degree in psychology and sociology, with a minor in English literature. She encourages all students to read, write, and never skimp on literature purchases.
Shyam K. IyerShaan Patel is the founder and CEO of Prep Expert. Patel grew up in his parents’ urban motel and attended inner-city public schools in one of the nation’s worst districts. Through hard work and determination, he achieved a perfect SAT score, which garnered him a quarter million dollars in scholarships and admittance to prestigious universities. He then created Prep Expert to share his perfect score strategies with students seeking to achieve their own dreams, aided by a successful appearance on ABC’s Shark Tank and investment capital from Mark Cuban. Patel is currently in residency at Temple University while still providing strategic leadership and management for Prep Expert.

Students, how are you minimizing spending on money pits? Share your tips with us on Twitter at @OppUniversity.

Why Did My Credit Score Drop?

By Andrew Tavin

Let’s count it down! Here are five reasons your score may have taken a hit.

You know your credit score is important. Maybe you have known that for a long time, or maybe you learned it while reading an informative article on the OppLoans Blog.

Regardless, even if you know the importance of your credit score for obtaining things like personal loans; credit cards; an apartment; and in some cases, a job; do you know what tends to make it drop?

Missing bills or misusing credit are not the only mishaps that will ding your credit score. There are unexpected factors that can cause your credit score to drop, as you likely surmised from the title of this article. Here are five of them.

No. 1: Closing a card or account

Variety is the spice of life. It also helps when it comes to your credit score.

“Credit cards, bank loans, and mortgages can all add diversity to your credit,” said Logan Allec, CPA, owner of personal finance website Money Done Right. “If you have all of your credit concentrated on one credit card, however, you can hurt your credit. To avoid this impact, make sure to diversify your credit with at least multiple credit cards.” Of course, if you are going to have more than one credit card, make sure you are able to pay off your balances each month to avoid accruing more debt, falling into a debt spiral, and negatively impacting your credit score.

With this in mind, you need to be careful about closing credit cards and may be better off keeping a card open, even if you are not using it at all. In this case, this can positively help to diversify your credit.

We also previously covered the ways in which paying off a loan can cause a small, often temporary drop in your credit score. Student loans are particularly susceptible to this, as it is often one of the oldest accounts an adult may have.

So does that mean you shouldn’t pay off your loans completely and should never close any credit cards? Of course not! It just means you should be prepared for a possible credit drop and keep an eye on your score so you are not caught by surprise if you undergo a credit check soon afterwards.

No. 2: Identity theft

These days, it feels like there is a new massive hack or data breach every other week. If your information has been stolen, you could find yourself facing credit drops you were not expecting.

“Identity theft is one reason your credit score may suddenly drop,” said Justin Lavelle, chief communications officer for “One way this can happen is via a data breach involving a company’s customer’s records being accessed in a fraudulent manner. These records often include the customer’s name, social security number, date of birth, home address, and driver’s license number.”

Lavelle explained how once a thief has access to this information, they can make as many purchases as they want or attempt to take out credit in your name. As you might imagine, this can tank your credit score before you even realize it has happened.

“Once you have been the victim of credit fraud, an extended fraud alert – lasting seven years – may be placed on your account until you authorize that it be lifted,” Lavelle said. Once this is in place, lenders must take additional steps in verifying your identity.

“If you suspect that you’ve been the victim of credit fraud, you can request an initial fraud alert be placed on your credit score for 90 days. This way, lenders must notify you when any new credit inquiries are made using your personal information. It also gives you the option to permanently remove your name from prescreened offers for 5 years.”

There is only so much you can do to prevent someone from stealing your identity, so it is important to pay close attention to your credit report and finances.

No. 3: Foreclosure

When it comes to finances, unfortunately, the poor often get poorer and one financial setback can leave you further behind. It certainly is not fair, but you should be wary of it, especially if you are in dire straits with your finances.

“Foreclosure can have many negative ramifications within your life, including hurting your credit score,” Allec said. “A lost home can lead to the ratings agencies deciding you are more of a credit risk and a corresponding drop in your score. However, many people didn’t realize this in 2008/2009 when housing prices were impacted. It was only after the housing market recovered that millions of Americans learned their credit had been negatively impacted.”

To avoid the risk of foreclosure, Allec suggested avoiding mortgages you will not be able to easily handle. For example, consider avoiding mortgages that require balloon payments and see if renting might make the most sense at the moment.

No. 4: Credit checks

You will likely need to undergo a credit check at some point, whether it is for a loan, credit card, or any number of other things. If you are subjected to a soft credit check, it will not affect your credit report and you may not even be aware it happened.

Hard credit checks, on the other hand, require your permission, so you should know that you will have a brief and small credit dip before you accept. As long as you are prepared, you should be able to manage it.

No. 5: Credit bureau mistakes

Finally, there are times when your credit can drop because the bureaus simply make a mistake.

“Did you know that the rating agencies often make mistakes when recording people’s credit?” Allec asked. “One company, Equifax, was hacked and exposed millions of people’s data. Other agencies have been documented to make mistakes where they routinely confuse different people and negatively lower the wrong person’s credit score.”

Allec recommends taking advantage of a free yearly credit report to check for any anomalies and ensure a bureau error doesn’t negatively affect you.

Getting ahead of the curve

Your credit will go up and down throughout the course of your financial life. As long as you know what causes those fluctuations to happen, you can work to make the ups more common than the downs.


Logan Allec is a CPA and owner of the personal finance website Money Done Right. After spending his twenties grinding it out in the corporate world and paying off more than $35,000 in student loans, he dropped everything, and in 2017, launched Money Done Right. His mission is to help everybody—from college students to retirees—make, save, and invest more money. He resides in the Los Angeles area with his wife Caroline. Follow him on Twitter @moneydoneright.
Justin Lavelle is chief communications officer for and a leading expert on identity theft and scams. BeenVerified is a leading source of online background checks and contact information. It allows individuals to find more information about people, including phone numbers, email addresses, property records, marital status, and criminal records in a way that’s fast, easy, and affordable. Follow him @BeenVerified.