Paying close attention to factors that can influence your credit scores is a smart move, especially considering their importance. Whether you want to open a new credit card, secure a loan, lease an apartment, or even take out a new auto or homeowner’s insurance policy, your credit scores could potentially help or hinder you in each of these situations.
Just as you should understand the details that could drive your credit scores higher or lower, it’s also important to understand the factors that will not have an impact. This will save you the time of focusing on items that aren’t relevant. So, what are the things that do not influence your credit scores?
When you pay a credit obligation late, there’s always a risk of credit score damage. However, the good news for you, your payment has to be at least a full 30 days late before a creditor can report you as being late to the credit bureaus. That “30-day delay” is a credit reporting industry standard that has been around for decades. That means if you pay a bill a few days or even a couple of weeks late, that will not impact your credit score.
Of course, it’s dangerous to pay your credit obligations even a little late. First off, you’ll probably get saddled with a late fee. And, if you make a mistake and pass that 30-day mark, your credit scores could suffer. In some cases, like with credit cards, your creditor might opt to close an account if you make a habit of paying after the due date.
When a credit bureau allows a lender to access the information in your credit file, they will post a record of the access called a “hard credit inquiry” on your credit report. It is certainly true that some hard inquiries might lower your credit scores. But, it is equally untrue that every single hard inquiry will lower your credit scores. It’s simply untrue. “Soft” credit inquiries, like those that occur when you check your own credit reports, never impact your score, ever.
I’ve been telling people for years that obsessing about inquiries is a waste of time. They are the least important factor in both FICO and VantageScore’s credit scoring systems, if they count at all. You’d do better focusing on the big fish, like paying bills on time and maintaining respectable amounts of debt.
Those pieces of plastic or metal that you carry around in your wallet can affect your credit scores in different ways. Credit cards, both secured and unsecured, do have the ability to influence your credit scores in both directions based on how you choose to manage them. Debit cards and prepaid cards, however, are another story entirely.
The banks and other issuers of debit and prepaid cards do not report their activity to the credit bureaus, although some companies claim otherwise. As a result, those accounts will not appear on your credit reports. Because credit scoring models only consider information on your credit reports when calculating your credit score, those debit and prepaid cards will not affect your scores in any way.
NOTE: If you have an overdraft line of credit option on your debit card the lender CAN report that unused line of credit to the credit bureaus because it is, in fact, an extension of credit. Overdraft protection is basically an unused, low-dollar, installment loan that only becomes active if you go into an overdraft position. If you don’t have overdraft added to your checking account, you may want to think about adding it.
Losing your job or experiencing a reduction in your income obviously can have an adverse impact on your finances. Conversely, an increase in income could impact you financially as well, though in different ways.
However, it’s important to note that your income is not part of your credit reports. It used to be, but income was removed from credit reports a little over 30 years ago. That means changes in your income will not influence your credit score.
Applying for a loan or credit card and getting denied is not a pleasant experience. But it may comfort you to know that a denial of credit will not have a negative impact on your credit scores. Records of denials are not on credit reports.
If a hard credit inquiry takes place when you apply for financing, there’s a chance your credit scores might go down. And, of course, a newly opened account may influence your scores in a variety of ways. But, the actual approval or denial of your application is a credit-score-neutral event.