Good information about Credit Scores

Five things you should know

The attached article contains some excellent information about protecting or improving your credit score. The negative consequences of using a debit card to rent a car were new to me, but not surprising once you think about it from the perspective of the rental company.

Just to review the differences between hard and soft hits on your credit score: The folks who calculate credit scores have determined that applying for several credit accounts at once increases the likelihood of future difficulties to make one's payments. According to FICO, having six or more hard inquiries on your report may make you look eight times more likely to declare bankruptcy than someone without hard inquiries. Therefore, it is very important to minimize the number of inquiries on your credit report, particularly if you know you will have a need to apply for credit in the near future (to purchase a car or a house, for example). Will one hard inquiry irreparably damage your credit score? No, of course not, but why have more  inquiries than you need? Keep your report as clean as possible.

Soft hits, or soft inquiries, are those that do not directly pertain to your attempts to borrow money. For example, prospective employers have noticed the correlation between good credit and employee retention, so if you apply for a job you can expect to get a soft inquiry on your report. Insurance companies are making soft inquiries into their existing customers' credit and adjusting premiums accordingly. This can be a tremendous boost (up to 25% discount) to those with outstanding credit. But remember that for every action, there is an equal and opposite reaction, so if your credit score is poor, you can expect to pay more for risk management.

The single best thing that you can do to keep your credit score solid is to pay your bills on time every month. Even if you can only pay the minimum, do everything you can to avoid the dreaded 30 days past due label on any of your accounts. Checking your credit three times a year and knowing the sources of all hard and soft inquiries is a good practice, too.