- 1 Do your savings affect your credit score?
- 2 Does Getting Married Affect Your Credit Score?
- 3 How Does Paying Off a Loan Affect Your Credit Score?
- 4 Q&A: Does a Free Credit Report Affect My Credit Score?
- 5 How Do Student Loans Affect Your Credit Score?
- 5.1 How Do Student Loans Affect Credit Score?
- 5.2 Student Loan Payments: Missing and Late
- 5.3 Student Loan Tips to Protect Your Credit Score
- 5.4 Can Shopping for Interest Rates Impact Your Credit?
- 5.5 How Can Refinancing Student Loans Help Your Credit Score?
- 5.6 Student Loans Can Actually Help Your Credit
Do your savings affect your credit score?
Your credit score represents how regularly you have been paying back any money that you have borrowed.
This borrowed money could be in the form of:
- using a credit card to make purchases,
- a credit agreement or finance scheme of some sort,
- a personal loan of some kind,
- or a mortgage
What can affect your credit score?
We think that the following factors can affect your credit score and we also explain why:
- If you currently have a lot of debt then this could make lenders wary of granting you further credit. We think it might be better if you pay off these debts before you consider applying for another loan.
- If there are mistakes on your credit report then you need to get these fixed as soon as possible so that it does not hamper your credit score and get in the way for a loan that you may need to apply for in the future.
- If you have not registered on the Electoral Roll, or are registered on it, but have not updated your details then this could impact your credit score. This is because lenders check the Electoral Roll to verify your identity to ensure that it is genuinely you who is applying for the credit and not someone else using your details.
- If you have been late or missed paying the instalments due on your credit card bills, utility bills, loans, mortgage and any other form of credit agreement, then this could affect your credit score.
- If you have more than one credit account that is open but you have not used for a while then this could affect your credit score. This is because it could indicate that you are having issues in paying off these accounts, when in actual fact these have merely been unused.
- Similarly, if you make more than one credit application at once, this could also have a bearing on your credit score. While you are thinking that you are being efficient by applying to various credit providers in one go, such behaviour could indicate to lenders that you are desperate for credit. We suggest that if you make one credit application, wait for the outcome and then proceed to making the next one (if the first one has not been granted) then this could help to keep your credit score unaffected.
- If you have had any joint bank or credit accounts, or a loan or mortgage with someone who you have no relationship with now, then it might be in your best interests to remove your name from such accounts, especially if the other person has a low credit score.
- If you have been issued with any County Court Judgements (CCJs) or Decrees (in Scotland), within the past six years (this is how long the information on your credit file remains valid for and from which your credit score is calculated), then this could affect your credit score. We suggest that you wait till the validity of any CCJs ends before you next apply for credit.
What does not affect your credit score?
The following information is not factored in when calculating your credit score and therefore do not affect it:
- Data in your current account
- Data in your savings account
- Any CCJs, decrees, bankruptcy or insolvency orders that are over 6 years old
- Any debts that have been written off over 6 years ago
- Your gender, ethnicity, religion, political affiliation, criminal records, medical history and educational qualifications.
Your savings and your credit score
The amount of money that you have in your savings account (or whether you even hold a savings account for that matter) is not factored in when it comes to calculating your credit score.
However, this does not necessarily mean that your savings can’t help you when it comes to obtaining the credit that you need, especially for a mortgage, or a personal loan for instance.
Some mortgage providers have an option that is known as an ‘offset mortgage’ which basically means that your savings can pay for some of the mortgage, thereby reducing the total amount left due for you to pay off and reduce your monthly mortgage repayments in the process as well.
Furthermore, if you have a financial emergency where you are unable to pay off any outstanding debts, then your savings could come in handy to help you do this.
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Does Getting Married Affect Your Credit Score?
When you fall in love and find “the one,” there can often be a great deal of information that is not disclosed. In fact, most couples don’t even discuss money until they actually get married. This is one reason so many marriages end in divorce. Often, there are no financial discussions about how much debt each individual has, or what their credit card APRs, savings account balances, or retirement plan amounts are. It’s imperative that before getting married, you know where your partner stands credit-wise, because when you say your vows, you’ll be saying “I do” to their good or bad credit decisions as well.
Let’s back up and get educated on exactly what a credit score is. There are good, average, and bad credit scores. Your credit score is used by lenders to determine if you’re a potential candidate to extend credit to. If you have a low credit rating, you’ll be penalized with more fees and a higher interest rate. Credit ratings range from 300 to 850 points—the higher the number the better your credit score. Privacy Guard provides a wealth of knowledge when it comes to everything credit. On their website they classify: excellent/very good credit 700 to 850, good credit 680 to 699, average credit 620 to 679, low credit 580 to 619, poor credit 500 to 579, and bad credit 300 to 499. So to answer the question of what is a good credit score, we would say 650 or higher is the desirable range.
How Does Marriage Affect Your Credit Score?
When you get married, your credit scores stay the same. The idea that your credit scores merge or lower each other is just a myth. Before you make any financial decisions together, it’s a good idea to seek advice from loan experts. EVEN Financial is a resourceful site that provides an easy, quick, and comprehensive loan search online from top providers. Oftentimes, married couples will pay bills out of a joint checking account. EVEN Financial offers great loans for consolidation to guarantee couples are not paying a ridiculous amount in fees.
It’s important to know that your spouse’s past credit history will not impact your profile. However, when you open a joint account, your information may be shared on each other’s reports. “Credit records which are established prior to the nuptials are never shared, inherited, or combined,” says divorce attorney Bruce Provda. “Marriage doesn’t affect your credit score if you take your spouse’s last name. Everyone has their own credit report and scores, even if they live in a community property state.”
Despite that, if you want to purchase a home together, your spouse’s negative credit history could impact your mortgage rates because both credit histories are being reviewed during approval. If you or your spouse has a less than acceptable credit score, the loan company may be hesitant to extend a loan. Prior bad credit will be reflective in the annual percentage rate. Before you make a big purchase like a house, if one of you has a bad credit score, it would be advantageous to improve that bad credit score before making the major purchase. Yes, this may delay plans, but overall you’ll end up with a better interest rate, which will save you big bucks in the long run. “Your credit score will continue to be tracked separately and is tied to your individual Social Security number. Only debts and accounts that you open jointly will be tracked on both of your credit histories,” says Anthony Criscuolo, Certified Financial Planner with Palisades Hudson Financial Group.
Does a Joint Checking Account Affect Credit Score?
Traditionally, most couples merge their money into a joint account. Ultimately, this means merging paychecks, recurring income, and tax refunds into a single bank account. However, in a recent study, TD Bank found that 42 percent of those in a relationship who have a joint bank account also have individual accounts. When joint bank accounts are opened, each account holder receives a debit card, a checkbook, and the authority to make deposits and withdraw funds from the account. Also, each person should also have access to online tools and information so that the money in the account(s) can be tracked. It’s important to know that long legal processes are endured when couples divorce and have to split funds. However, one of the biggest reasons couples opt for a joint account is because it’s easier to track one checking account versus having to review multiple accounts to find out where their money is going. Some couples do not like their spouse knowing what they spend every dollar on or have trouble purchasing a gift for their spouse because it will appear on the transaction history of their joint account. Therefore, you may decide to maintain individual bank accounts in case you want to make a gift purchase or spend money.
There are also drawbacks to a joint bank account that could affect your credit score. If one of you is not good with money, he or she may overspend consistently, resulting in you not having enough money to pay your bills. Creditors will then report payments being late or not received at all, which will affect each individual whose name is on the loan or credit card. It’s important to be upfront when it comes to disclosing your debt. If you don’t disclose to your spouse that you have student loans, credit cards, alimony, child support, or other debt, then those bills are not allocated in your budget for outgoing expenses.
It’s relatively easy to get lost in love, but it’s important to remember that a healthy marriage means also having a healthy financial outlook. Be honest with your spouse and disclose all of your debt. This may cause initial frustrations; however, it could save your marriage in the long run. You should sit down as a couple with both credit scores in hand and do a thorough analysis of what items could be improved. In addition, utilize this time to set financial goals. For example, if you’re thinking about purchasing a home or having children, figure out what financial milestones you’ll need to achieve before these actions can happen. Nonetheless, don’t have the mindset that you’ll always be in debt or will never get away from past bad credit decisions. Anything is possible. If you’re willing to put forth the work to improve your financial history, you’ll reap the rewards together and be much happier in the end.
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XO Group Inc. and its affiliates do not provide tax, legal, financial, accounting or similar advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial, accounting or similar advice. You should consult your own advisers before engaging in any transaction.
How Does Paying Off a Loan Affect Your Credit Score?
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With credit playing such a huge factor in your financial future, it’s no wonder we look for ways to maximize our credit scores. One common strategy for building your credit score is to pay off credit card debt. It can give your credit score a nice boost, especially if you’re carrying a large balance.
Get Your Free Credit Score & Monitoring
It may seem logical, then, to assume that the same strategy must apply to other types of accounts — like a car or home loan, for example. And if you follow this theory, paying a loan off early might sound like a great strategy for building your credit score. Unfortunately, you may be making yourself less credit-worthy, according to scoring models. (You can check your credit scores for free on Credit.com to see where you stand.)
When it comes to credit scores, there’s a big difference between revolving accounts (credit cards) and installment loan accounts (i.e. a mortgage, student loan). Paying an installment loan off early won’t earn you any additional credit score points, and keeping them open for the life of the loan may actually be a better strategy for your credit score. Let’s take a look.
Credit Cards vs. Installment Loans
Credit cards are revolving accounts, which means you can revolve a balance from month to month as part of the terms of the agreement. And even if you pay off the balance, the account stays open. A credit card with a zero balance (or a very low balance) and a high credit limit is very good for your credit score. Installment loan accounts are very different.
An installment loan is a loan with a set number of scheduled payments spread over a pre-defined period of time. When you pay off an installment loan you’ve essentially fulfilled your part of the loan obligation — the balance is brought to $0 and the account is closed. This doesn’t mean that paying off an installment loan isn’t good for your credit score — it is. It just doesn’t have as large of an impact because the amount of debt on individual installment accounts isn’t as significant a factor in your credit score as credit utilization is.
Now that we’ve clarified the difference between credit cards and installment loans, let’s consider what happens to your credit score when you pay off an installment loan, and whether or not it’s a good idea to pay the loan off steadily over time or to pay it off early. Paying off an installment loan affects your credit score in a couple of ways:
Q&A: Does a Free Credit Report Affect My Credit Score?
November 25th, 2015
Question: If I check my credit report, will it lower my credit score?
Answer: It's a common misconception that you'll be penalized if you check your own credit report. You do not lose credit score points when you check your own report. This is because checking your own credit is viewed as a "soft inquiry."
Hard Inquiries vs. Soft Inquiries
There are two types of inquiries: hard inquiries and soft inquiries. A hard inquiry occurs when, for example, you apply for a credit card or a loan. Applying for a mortgage is another type of hard inquiry. The potential lender will pull your credit report from one of the major credit bureaus and review your history closely. A hard inquiry usually knocks off anywhere from one to five points from your score.
However, for some type of inquiries, such as when you're shopping for a mortgage or car loan, the score "recognizes9quot; what you're doing and the inquiries are treated as one inquiry instead of as separate hard inquiries. But you have to do all of your rate shopping within a 45-day period, according to myFICO.com.
A soft inquiry doesn't impact your score at all. One example, as already mentioned, is when you check your own credit report. Another example of a soft inquiry is when a lender checks your report to determine if you qualify to receive a pre-approved offer for a credit card. But if you actually apply for the card, the lender would do a hard inquiry and examine your credit more closely.
So you can feel free to check your reports regularly without any worries about your score. In fact, checking your report regularly can actually help protect your score.
How to Check Your Credit Reports
You can check your credit reports for free at AnnualCreditReport.com. This is the official site (recognized by Federal Law) to get your free annual credit reports. Every 12 months, you are entitled to one free credit report from each of the three major credit bureaus: Equifax, Experian, and TransUnion.
You can request all three at one time or spread them out over the year. One reason you want to check your reports is to look for signs of fraud. For example, is there a credit card account listed that you didn't open? You also want to make sure all the information on your report is accurate. Errors on your report have the potential to lower your score. So checking your reports is a way to protect your credit.
Checking Your Credit Score Is Okay, Too
Sometimes, folks get confused about the difference between the credit report and the credit score. These are two different things. Your credit score is not listed in your credit report. You can buy a FICO score on myFICO.com for $19.95. You don't need to spend the money on a FICO score very often. It's a good idea to do this once a year to keep an eye on it.
In the past year, many credit card issuers have started including a free FICO score on statements or online. This is an excellent benefit and a free way to see what your FICO score was at the time. Remember, scores change frequently. But it's still a great way to monitor your score from month to month.
You can also check your free score on LendingTree. And by the way, when LendingTree checks your information at the credit bureau, it's a soft inquiry so you don't need to worry about damaging your credit score at all.
How Do Student Loans Affect Your Credit Score?
April 28th, 2017
Average college tuition in the United States is up by 42 percent in the past ten years and the total amount of student loan debt outstanding is up by 170 percent over the same period. As you prepare to manage your student loan debt, you need to understand the answer to a far-reaching question: do student loans affect credit score?
The answer is a definite “yes.” Student loan debt may be the first debt you have ever taken on and most likely will be the largest debt you’ve dealt with to date. How you handle this debt can have a huge effect on your credit score. Since that score determines your access to credit and the cost of that credit in the future, your student loan debt can set the tone for your financial future.
Your credit rating reflects the debts that you have and your repayment history. The key to a good credit rating is to make regular payments on time and pay off your debt as quickly as possible. With careful planning and financial responsibility, you won’t feel overwhelmed by your student loan.
Here are a few tips to help you effectively manage your debt so your credit is not negatively impacted by your student loan.
How Do Student Loans Affect Credit Score?
FICO, the most commonly-used form of credit score, breaks debt into two categories: installment loans and revolving credit.
Installment loans are those with a fixed schedule for paying down debt over time. Revolving credit includes more flexible kinds of debt, such as credit cards, for which balances can go up and down over time.
The key difference is that installment loans represent more of a commitment to making set payments on a regular schedule. With revolving credit, as long as you can meet a fairly modest minimum monthly payment, the pace at which you repay your debt can vary without you being considered behind. With installment loans, though, you have to make predetermined monthly payments of interest and principal that will work towards paying down your debt over time.
The thing to remember is this: if you don’t keep up with the schedule for your student loan payments, you will be considered behind on your debt and this will hurt your credit score.
Student Loan Payments: Missing and Late
Thinking of your payments as being on a strict schedule is central to understanding how those payments can afford your credit score.
Start by thinking about a train that runs on time every day. Just because you arrived at the train station ten minutes early yesterday does not mean you can afford to show up ten minutes late today and expect to still catch the train. The schedule has to be met day in and day out.
So, for example, you cannot afford to skip a student loan payment, even if you previously made an extra payment. If a payment that the loan company is expecting does not arrive, it will be considered missing and this will affect your credit.
Similarly, if your loans are due on the 15th of each month, it is your responsibility to make sure the lender receives them by that date. No excuses, and no margin for error. If a payment does not arrive until the 16th, it will be considered late and this will hurt your credit.
Student Loan Tips to Protect Your Credit Score
The following are some basic tips for preventing your student loan from damaging your credit history:
Government-subsidized student loans typically do not require payments until you are out school, but not all student loans are like this. Some require that you at least make interest payments from the very start, while you are still attending school. These loans may offer you the option of deferring interest until after graduation, but since this means adding that interest to the principal of the loan, it will result in you paying more interest in the long run.
Understand what kind of loan you have, and when you will be expected to begin making payments. If it is not a government-subsidized loan, you may have to make interest payments while you are still in school. Factor this amount into your monthly budget and make payments on time.
Upon graduation, you usually have a six-to-twelve-month period before you have to start repaying your loan. This time is designed for you to find a job that affords you some financial stability. If you get a job before your grace period is up, put some money aside before you have to start making those payments. This will allow you to make a larger payment at the start of your repayment period to reduce future interest expense or build a reserve of savings that will allow you to continue to make payments, even if you have a financial setback.
Pay it off as soon as possible
Most student loans give you 10 years to repay. The monthly payment that your lender requires is based on this timeline. If you can afford it, increase your monthly payment and pay your loan off sooner. Also, if you get a tax refund or bonus check, use it to make an extra payment toward your principal.
By paying more than the minimum payment, you will reduce your debt and pay off your loan faster. Not only will this lower the total interest you pay over the life of your loan, it will have a positive effect on your credit score.
One caveat: Interest rates for student loans are usually lower than for other types of debt. If you are carrying a significant amount of more expensive debt, such as credit card debt, put the extra payments toward that debt first. You’ll save money on interest in the long run.
Contact your lender immediately if you’re having trouble making your loan payments. By communicating with your lender, you show a desire to cooperate, which makes lenders more willing to work with you to find a solution. You may be able to arrange an alternative repayment plan with lower payments over a longer term. You may also be able to defer payments for a few months, but remember your loan may continue to accrue interest.
If you can’t afford to pay the full amount, make a smaller payment to show a good faith effort. If you skip payments, your loan will be considered delinquent. This will show up as a negative mark on your credit report.
When you repay the loan, your credit rating should improve, but your missed payments will still be on your record.
Defaulting on your student loan can leave a stain on your credit history for up to seven years after your loan is paid in full. When you default, collectors will hound you for payments and may eventually seek legal action. Your lender can garnish your wages and your tax refunds in order to repay the loan.
If you declare bankruptcy, keep in mind that your student loans are not always forgiven. Government loans may still have to be repaid. A bankruptcy also remains on your credit report for seven to 10 years.
As with any money you owe — be it a credit card balance, a student loan, or a mortgage — your best bet is to make regular payments and try to pay the balance off as quickly as possible. Not only will this improve your credit score, but you’ll also sleep better knowing the debt is off your shoulders.
Can Shopping for Interest Rates Impact Your Credit?
Shopping for the best student loan interest rates is a smart move, because finding a cheaper rate will save you money for years to come. However, you have to shop around in the right way or else it could adversely affect your credit.
When credit agencies repeatedly receive credit checks about a consumer, it can look as though that person is frequently seeking to take on more debt. This may hurt your credit rating, but there are ways to shop for better rates without triggering this negative impact.
Rather than shopping for rates sporadically, if you have inquiries for the same type of debt within a two-week period FICO will recognize these as inquiries related to a single loan rather than multiple loans. Also, use online resources to compare rates without triggering a credit check, and talk to lenders about what are known as “soft inquiries” and a pre-qualification process that can size up your likely loan eligibility without a formal credit check.
How Can Refinancing Student Loans Help Your Credit Score?
Refinancing itself won’t directly improve your credit score, but if it helps you keep repayment on schedule by lowering your monthly payments, refinancing student loans can help you avoid damage to your credit history.
The best way to lower your monthly payments by refinancing is if you can reduce your interest rate. You can also lower your monthly payments by stretching repayment out over a longer period of time, but this is likely to result in you paying more interest over the life of the loan.
Student Loans Can Actually Help Your Credit
While you should be aware of the potential for student loans to hurt your credit, there is also an upside. Handled correctly, student loans can actually help your credit.
One of the challenges young adults face is trying to establish a credit history. This can be a catch-22: it is tough to qualify for credit without any payment history, and yet how do you establish that kind of history if no one will lend you money?
Often, student loans are the answer. They may be the first type of credit you can qualify for and, if you handle your payments responsibly, they will start to establish the kind of positive credit history that will give lenders the confidence to extend you other forms of credit – such as credit cards or a mortgage – in the future.
Student loans will have an impact well beyond your years in college. Your payments will impact your budget, and your diligence in making those payments will impact your credit score. Handling this successfully comes down to understanding your responsibilities and following through on them.
The good news is that if you do that, your student loan could become the key that unlocks your access to affordable credit when you need it in the future.