Make The Most Of Your Credit Score
Credit Inquiries
Anytime a lender, creditor or employer checks your credit report, an inquiry is created. Although the number of recent inquiries is not a major factor in a credit score, too many inquiries in the last six months to a year can negatively impact your score so it's best to avoid applying frequently for new credit.
The following types of inquiries do not hurt your credit score:
- Consumer-initiated inquiries, which occur when you order your own credit report
or score.
- Promotional inquiries, which are created when your file is reviewed for a pre-approved
credit card or line of credit.
- Employment or insurance related inquiries.
To avoid penalizing consumers who shop for mortgages or car loans, inquiries for these types of loans within a short period of time are grouped together and often count as a single inquiry. There is no such buffer, however, for inquiries generated by applying for credit cards.
How Will Credit Counselling Affect My Credit Score?
Many people worry that their credit will be damaged if they enter a debt management program through a credit counselling service. In fact, their credit score may stay the same or actually improve if they successfully stick to the repayment plan. There are several reasons for this:
- Fair Isaac Co., creator of the widely used FICO scores, does not consider the fact
that a consumer is in a counselling program when calculating a credit score.
- Many creditors will not report anything to the credit bureaus that indicates that
an account is being repaid through a counselling agency.
- Some creditors will "re-age" accounts that are behind when a consumer enters a counselling
program and sticks with it for several months. That means the late payments immediately
prior to beginning the counselling program may be removed.
- By entering a credit counselling program you may avoid further late payments, credit
problems and even bankruptcy - all of which can significantly hurt your credit.
- If you successfully pay down your debt through a counselling program, your credit
score can improve since the amount of debt you carry is one of the major factors
in calculating a credit score.
A warning: While you are paying your debts through a counselling agency, you still remain legally liable to the creditor for those payments. If the counselling agency pays creditors late, or doesn't pay them at all, your credit report will suffer. Choose a reputable counselling agency with a track record of paying creditors on time.
