Article by CKB of The LI$ T – A College Advice Blog

We’ve all heard jokes from standup comedians or by word of mouth about having bad credit. ‘My credit is so bad, that I just got turned down for a magazine subscription.’ ‘My credit is so bad that I needed a co signer to pay cash.’ While those jokes do provide a chuckle, the truth is if you really have bad credit, the joke is really on you. In this post, we are going to look at things that can negatively affect your credit score and how to best steer clear of these pitfalls:

1) Hard vs Soft InquiriesA soft inquiry (pull) is one where it does not negatively affect your credit history and score. For example, if you get pre-approved for a credit card in the mail, a soft inquiry was done to see if you would qualify for the card. Potential employers use soft pulls for background checks and banks use them to help you qualify to open an account. Most times you don’t even know they occurred. This is the better inquiry to have.

Hard pulls DO affect your credit score. ANYTIME you apply for a loan or credit card the lender conducts a hard pull and it stays on your credit report for two years. The more hard pulls you initiate and have on your credit report it makes you appear less trustworthy because it appears that you are constantly seeking credit. This even rings true for that Express, Macys, Banana Republic, Victoria Secret, and Old Navy card you might have. You probably did it to save a certain percentage amount on shoes or clothes. However, your credit score was dinged and that is worth WAY more than the couple of dollars you saved on your purchase. Please be cognizant of when you open credit and how much you open. Long, steady, and stable credit accounts should be your goal.

2) Bad Credit Can Cost YouTo put this all in perspective, say for example Shawn and Amy are each buying their very first house/condo. On one hand you have Shawn who has a 720 credit score and he is approved for financing at 5.49% for a monthly payment of 1. Not too shabby for your first place to live. Now on the other hand you have Amy who buys the same style of condo at the same price BUT with a credit score of 570 she is approved at an interest rate of 8.53% for a monthly payment of 57. Say for example they both signed 30-year mortgages and you can begin to see how Amy’s credit history is going to cost her tens of thousands of dollars more than Shawn in the long-run. This same scenario can be applied when making any big purchase like a car, jewelry, or furniture. This is just one of the many scenarios where having bad credit can truly cost you.

3) Debt to Credit RatioIt can also look bad if you have too much debt. Another thing to be mindful of is your debt to credit ratio. You can pay all of your bills on time, have different types of credit, and a long history. But if you are using 95% of the credit made available to you, you are close to being maxed out and that does not look good to lenders. The average debt to credit ratio in the US is 52% to 48%.

4) Just Be on TimePerhaps the easiest but yet hardest thing for many to achieve is to just pay your bills on time. This means your student loans, phone bill, utilities, rent/mortgage, car note….just be timely. Showing late and delinquent on accounts looks unfavorable to lenders.

In the next post, we will look into what exactly is covered on a credit report and how to monitor it yourself.

About the Author

The LI$ T is a blog dedicated to giving college students advice that will set them up for success in the future! We hope to provide students with advice that no one else talks about regarding finances, jobs, and their social lives. We pride ourselves on having a fresh approach to addressing students! http://www.addittoyourlist.com

Tagged with: Credit • Credit...The • Deal • Joke's • Real

Filed under: Advice

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