As you work to improve your credit score, it’s important to be mindful of the behaviors that could help or harm it. You may already know what can help boost your creditworthiness—paying your bills on time and responsibly using credit, for example—and that missed payments, or accounts in collections, could hurt your score.
What you may not know is that not every financial decision impacts your credit score. While the following seven things could influence your financial state, they will generally not harm your credit score:
1. Paying with a debit card.
Your debit card may look like the credit cards stowed in your wallet, and both types of cards do have similar functions—they allow you to pay without cash, can be used for online shopping, and come with fraud protection. But unlike paying with a credit card, paying with your debit card does not affect your credit history or your credit score.
When you pay with credit, you are buying something now to pay back later. With a debit card, however, money that you already have comes straight out of your bank account. No borrowing is involved, even when you run the debit card as credit to avoid inputting your PIN.
The same goes for prepaid debit cards, which you can buy with a certain dollar amount already loaded onto the card. If you do come across an advertisement for a prepaid debit card that claims your card activity will appear on your credit report, the card provider will probably only report to a lesser-used credit reporting agency, according to the Consumer Financial Protection Bureau. The debit activity will not appear on your credit reports from the three national credit reporting agencies, which are used by most lenders.
2. Experiencing a drop in salary.
While a salary cut may affect some aspects of your personal and financial life, your income in and of itself is not a factor used to calculate your credit score.
But some creditors do consider your income when calculating your debt-to-income ratio, which they use to evaluate your creditworthiness. Mortgage lenders, for example, typically agree that you can pay between 28 percent and 36 percent of your gross income on all of your debt obligations.
In general, lenders view lower debt-to-income ratios more favorably. However, the Qualified Mortgage (QM) Rule, implemented in January, allows for a maximum debt-to-income ratio of 43 percent.
A drop in income could also indirectly hurt your credit score if you stop paying your bills or regularly miss payments because payment history is the largest factor used to calculate your credit score, accounting for 35 percent of the total.
3. Getting married.
Tying the knot can have implications for your finances—and the joint finances you share with your spouse—but marital status alone is not factored in to your credit score.
The credit reporting agencies keep files only on individual U.S. residents, not spouses or families. So even if you get married, you’ll still maintain your own credit file, and the same is true for your spouse.
However, if you decide to open joint accounts with your spouse, such as a mortgage or a shared credit card, his or her low credit score could make it difficult to qualify for credit.
Once joint accounts are opened, they can appear on both your credit report and that of your spouse. Any negative activity on your joint accounts, such as missed or late payments, could harm your credit score, even if payment was your spouse’s responsibility.
Also note that if you live in one of the nine community property states—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin—all debt that is racked up during a marriage is considered joint debt. This means that if your spouse goes in to debt on his or her own account while you are married, that negative information could be listed on your own credit report.
4. Filing for divorce.
Just like starting a marriage won’t directly impact your credit score, ending a marriage won’t either.
The act of filing for divorce will not affect your credit score, but there are ways that a divorce could take an indirect toll on your creditworthiness. If you start to miss payments on your credit accounts because you are consumed by the divorce, for example, your credit score could drop.
An agreement with a lender also trumps a divorce decree, so even if your divorce decree notes that your former spouse has agreed to take on the debt from some of your joint accounts, you are still legally liable for the debt. If your former spouse does not make payments, for instance, the creditor could come to you for payment.
5. Being denied credit.
If you apply for new credit, being denied will not impact your credit score.
The act of applying for credit, on the other hand, could impact your credit score. When you initiate a request for credit, it triggers a hard inquiry on your credit report, which could lower your credit score.
6. Having high interest rates on your current accounts.
If you apply for new credit, your credit score will, in part, determine your interest rate. With a higher credit score, you are more likely to qualify for a low rate. But the interest rates you are currently being charged on your credit cards or other credit accounts are not factored in to your credit score. If you are being charged a high interest rate on a retail credit card, for example, that high rate will not reflect negatively on your credit score.
7. Participating in credit counseling.
In general, credit scoring models do not consider whether you are participating in a credit counseling service. But the actions you take as a result of credit counseling—deciding to make partial payments, for example—could reflect negatively on your credit score.
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