Editor's Note: This article is an updated version of the one originally posted on September 17.
Why does your credit score matter so much? Well, it's what almost every company in your life uses to determine whether you are a credible, trustworthy borrowing candidate. From your prospective employers to your prospective landlords, most companies will check your credit report in order to assess you. However, if they only have access to your report, one can assume that they can still speculate as to how credit worthy or responsible you might be. Too many active lines of credit can be a red flag for some places, although without the score, it can be hard to tell. As always, please check the laws of where you are living, as they may be different from state to state and country to country. (For related reading, be sure to check out 5 Keys To Unlocking A Better Credit Score.)
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Everyone makes mistakes from time to time, but knowing what actually hurts or helps your credit score will help you present yourself in the best light possible when it comes to wanting to land that job, secure that dreamy apartment or buy your first home. To make sure you know what doesn't factor into your credit score, here are some slipups that you can breathe easy about.
- Having a Low or High Income
You may find information about your employer listed on your report, but your income has no impacts on your credit score. So if you earn a low salary, don't fret about it being a factor when you go to ask for a loan - just be certain that you can pay on time, because those payments will affect your credit score.
- Not Paying Insurance, Utility and Cell Phone Bills
These companies check your credit score to figure out whether to insure you, or to provide you with their services, but although they use your score to make a decision, they don't report any of your payments to the credit agencies. However, if you continually default on your payments, your account may be sent to the collections agency who would then report to the credit bureaus.
- Missing Rent Payments
Much like the insurance, utility and cell phone providers, if you pay your rent on time, it won't help your credit score because the credit bureau would ignore it even if it appeared on the report. As with all bills, if you fall behind on your rent, it could lead to you getting officially evicted, which will hurt your credit score.
- Bank Overdraft
Going into overdraft can get expensive, if you do it all the time, but it won't hurt your credit score if you can settle it before your bank sends your account to a collections agency.
- Checking Your Own Credit
You can check your credit report as much as you'd like without damaging it, but make sure you use a trusted source such as the credit bureaus themselves. Having anyone else pull your credit report for you (such as a lender) will appear as what is called a "hard inquiry", which would seem as though you are applying for more credit and consequently damages your credit score.
- High Interest Rates
Lenders tend to give the best rates to those with the best credit scores, but your credit score influences your interest rate, rather than the other way around. So if you have a high interest rate on your loans, don't worry about it continually impacting your credit score.
- Credit Counseling
Credit counseling is nothing like declaring bankruptcy; even though it appears on your report, it won't hurt your credit score. If your counselor is handling the payments for you, check on a regular basis that the payments are arriving on time, because late payments will hurt your score even though they're coming from a credit counselor. (For more on credit counseling, see How To Find A Credit Counselor.)
- Your Age
The only relationship between your age and your credit score is that you don't have enough of a history. Think of it like this: if you start at a new job, fresh out of college, you aren't going to expect to be the president because you don't have enough work experience for the job. It's the same thing with credit scores - someone older than you will have more of a credit history and may seem more trustworthy than you, even if they made mistakes early on, because lenders take the whole history into consideration.
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The Bottom Line
Credit scores impact almost every aspect of your life, from where you can live to where you can work, but keep in mind that credit scores are not the only indicator of how financially fit you are. Anyone who has a lot of debt, but manages to make their minimum payments on time every month, will have a stellar credit score, but their financial health will still be in jeopardy.
Disclaimer: As always, please check the rules of where you are living, as they may differ from state to state and country to country. For example, in Wisconsin, the energy company reports monthly to credit agencies.
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