8 Money Moves That Seem Harmless but Hurt Your Credit Score

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If you know what hurts your credit score and you never miss a debt payment, you probably have a decent credit score. But if you want to push it even higher, you’ll need to watch out for common misconceptions about what actually lowers your credit score.

Even if you’re generally responsible with money management, you might inadvertently be doing things that lower your credit score. Here are some financial decisions that seem benign, but could damage your score.

What hurts your credit score?

1. Using cash or debit instead of credit

Paying with cash or debit will always cost less than paying with credit, since you’ll avoid interest.

But as Liran Amrany, co-founder and CEO of personal finance app Debitize, points out, using debit could be a missed opportunity.

“You’re staying out of debt, which is great, but you’re also not taking advantage of the easiest and fastest (and free) way of building your credit score,” he says. “Even just putting one monthly bill on a credit card and setting it to autopay will go a long ways to improving your credit.”

2. Avoiding debt altogether

Staying debt-free is a worthy goal, but avoiding debt altogether means delaying the chance to building credit. In fact, having no credit can be almost as bad as having poor credit.

“People perpetually delay dealing with credit until they think they’ve gotten to some point where they have more money or a better job,” says Lee Gimpel, co-creator of The Good Credit Game.

However, “building a good credit score comes from a responsible pattern of using credit — and a longer history of years is better than a short history of a few weeks or months,” he explains.

“You’re better off to get a credit card today and use it versus wait for years, until right before you want to buy that house or car,” Gimpel adds. Otherwise, you could get rejected for rentals or loans when you need them due to a lack of credit.

3. Not having different kinds of debt

Any loans or credit cards that you use to responsibly borrow and repay debts can help build your credit. But the more types of accounts you have open, the richer your mix of credit, which can help boost your score.

“Having credit cards is good, but a lender is going to want to see that you can handle a mix: loans, credit cards, lines of credit, etc.,” says Josiah Nelson, a credit expert and author. In addition to getting a credit card, he suggests secured loans as a good way to build credit.

“The optimal number of accounts to have on your report is around 10 — mixed up between loans and cards,” Nelson says.

Just make sure you wait three to six months between opening new credit accounts and keep your credit utilization low.

4. Closing your oldest credit card account

Maybe there’s a card you haven’t used in a while, or you’ve finally paid down the balance and you’re anxious to just get the card out of your life. If you’re thinking of closing your account, you may want to reconsider.

Proceed carefully — closing a credit account can actually hurt your score, says Alex Gerard, CEO of credit card advisory service CardsMix. “It is quite counter-intuitive that this action can cause a dip in your credit score,” Gerard says.

“In the FICO model, the length of the credit history makes [up] 15 percent of your credit score,” Gerard points out. “That means that if you close an old credit line, both the average age of accounts and the oldest account age is taking a hit, decreasing your credit score.”

5. Reducing your credit limit

Another way to help your credit is to keep your credit card limits high, which helps you maintain a favorable credit utilization ratio.

When you close a credit card, for example, “you now have less total credit lines outstanding [and] it may increase your utilization, which makes up 30 percent of your FICO score (lower is better),” says Amrany. That’s yet another reason to leave a credit card open, to help keep limits high.

That’s also why it’s a mistake to decline your bank’s offer to increase to your credit limit. “Some consumers think it’s a smart move to just simply decline the offer altogether,” says Susan Chung, managing director for Smart Lawsuit Funding.

Resist the urge to increase spending when your credit limit increases, Chung warns. If you do this, accepting a bump can help improve your credit utilization.

6. Applying for new credit

Applying for and opening multiple new credit accounts within a short period is an action that many consumers might not be aware can hurt their credit.

“People may think that it is harmless to apply for as many cards as they can,” says Nelson.

However, a consumer who is seeking a lot of credit at once will make a lender worry that they are overextending their finances and borrowing more than they can afford. “As a credit analyst, if I see someone applied for 10 cards before ours, I’m most likely going to go ahead and deny their application,” Nelson says.

7. Shopping around for insurance and other services

Consumers looking for deals on car insurance and other services will often shop around and compare quotes. But here’s what lowers your credit score: Do it too often and it can look bad on your credit history.

“In order to provide you a finalized quote, insurance companies will run your credit,” points out Raymond Weiss, a CFP, licensed insurance agent, and blogger at The Ways To Wealth. “This is considered a hard inquiry.” Credit inquiries get recorded on your credit history, and too many can lower your credit score.

“What’s best is to choose one time a year and shop within a 30-day window,” Weiss suggest. “If you’re shopping within a 30-day window, the credit reporting agencies will consider this just one hard inquiry, no matter how many companies you get quotes from.”

8. Not checking your credit

Too many hard inquiries from lenders can be damaging to your credit. Because of this, says Nelson, some consumers think it could also damage their credit when they pull their own reports.

“This is a myth,” he says. Credit inquiries you originate are classified separately from those initiated by lenders or servicers. “In reality, you could pull 100 copies of your own credit report, and as long as a creditor didn’t initiate the inquiry, it will not be listed as an inquiry,” he explains.

Checking your annual credit report is an important part of maintaining a good credit history. You can catch mistakes and signs of identity theft early on, and reviewing your report might give you some ideas on how you could further improve your credit score.

Now that you know what hurts your credit score, you can take steps to change your habits and improve your score. Want to learn more? See exactly how your credit score is calculated.

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.