Do Overdrafts Affect Credit Score?

If you're like many of us, you may have overdrawn your checking account, causing a negative balance to show up. Also, you may have noticed that your bank or credit union may have charged you an overdraft fee for going over your available balance. We often get asked whether overdrafts affect your credit score? We will answer this question in much detail below.

Do Overdrafts Affect Credit Score?

Overdrafts do not affect your credit score because the status of your checking account is not reported to the credit reporting bureaus. Since it's not reported to the credit reporting bureaus, it will not appear on your credit report, nor will it be factored into your credit score. So, if you have an overdraft on your account, it will not affect your credit score.

That said, if you leave an account with an unpaid overdraft or negative balance for too long, your bank may sell the negative balance that you owe them to a collection agency, the collection agency will then attempt to collect the money from you. In the process of collecting the money, the collection agency may add a collection account to your credit report. A single collection account on your credit report can lower your credit score by up to 100 points. So, if you have an overdrawn account, you should pay off the overdraft to prevent damage to your credit.

Do Checking and Savings Accounts Appear On Your Credit Report?

The status of your checking and savings accounts is not reported to the credit reporting bureaus as is the status of your credit cards and loans. The status is not reported because checking and savings accounts are not used to borrow money. So, if you have an overdraft on one of your accounts, the overdraft is not reported on your credit report.

Since the status is not reported, it will not impact your credit, nor will it lower or raise your credit score. So, opening a checking account, making deposits, and making withdrawals have no effect on your credit score.

That said, even though your checking and savings accounts are not reported to the credit reporting, there is a system that tracks the status of these types of account.

The status of your checking and savings account is reported to the ChexSystems. Using ChexSystems, you will find information on checking accounts that you've opened, overdraws on your accounts, negative balances that were left unpaid for too long, as well as any involuntary closures of your accounts.

So, although negative items on your checking or savings accounts are not reported to the credit reporting bureaus and will not affect your credit score, the negative information will appear on your ChexSystems report. You could be denied when attempting to open an account if too much negative information is on your ChexSystems.

Should You Enable Overdraft Protection For Your Checking Account?

If you live paycheck to paycheck and you're barely maintaining enough money in your checking account to cover your bill payments and transactions, you may significantly benefit from setting up overdraft protection on your checking account.

In the event that you don't have sufficient funds in your checking account, setting up overdraft protection will allow transactions to be approved even if you don't have sufficient funds in your checking account to cover the transaction.

That said, overdraft protection is not free, in fact, most banks will charge you a fee that usually ranges around $35 for every transaction that you make, which leaves a negative balance on your account.

For example, if you go into the Apple Store to purchase a $1,500 Macbook Pro and you only have $1,000 in your checking account. If you have overdraft protection enabled on your checking account, the transaction at the Apple Store will be approved even though you didn't have sufficient funds in your checking account to cover the transaction.

So, if you make a lot of use of your checking account and often go into the negative, you should enable overdraft protection if you want your transaction to be approved. However, if you don't mind your transaction being declined when you have insufficient funds, you can go ahead and cancel your overdraft protection.

That said, there is a second type of overdraft protection that allows you to make transactions that exceed the available balance in your checking account, but instead of the bank covering the transaction, the funds would be withdrawn from a savings account that you've linked to your checking account in the event of an overdraft. Overdraft fees are significantly lower when you pull money from your savings account instead of the bank lending you the money.

When Will An Overdraft Affect Your Credit Score?

Although having an overdraft on your account will not directly affect your credit score because the status of your checking and savings account is not reported to the credit reporting bureaus and therefore does not appear on your credit report, nor does it affect your credit score.

That said, there is one situation where an overdraft could indirectly affect your credit score. If you leave an overdraft (negative balance) on your account for too long, your bank or credit union may sell the outstanding balance to a collection agency. The collection agency will then attempt to collect the balance from you.

In the process of collecting the balance, the collection agency may place a collection account on your credit report. A single collection account can drop your credit score by as much as 100 points. So, if you want to prevent hurting your credit, you should never leave a negative balance on your checking or savings account for too long as you may find yourself in this unfortunate situation.

Credit Score Planet Frequently Asked Questions

1. Do overdrafts affect your credit score?

No, overdrafts do not affect your credit score because checking and savings account are not reported to the credit reporting bureaus and therefore do not appear on your credit report. Since they do not appear on your credit report, they're not factored into your credit score.

2. Are overdrafts reported to the credit reporting bureaus?

No, overdrafts are not reported to the credit reporting bureaus.

3. Should I set up overdraft protection?

If you frequently go over your checking account's available balance and you want your transactions to go through even though you don't have enough money in your checking account to cover the transaction, you should enable overdraft protection. That said, you should keep in mind that every time you go over your available balance and cause your account to become overdrawn, your bank will charge you an overdraft fee. This fee usually ranges in the $35 range.

4. What happens if I can't pay my overdraft?

If you can't pay an overdraft, your account will continue to show a negative balance. That said, if you keep a negative balance for too long, your bank may close your account and sell the negative balance to a collection agency. The collection agency may then damage your credit.


Do Secured Credit Cards Help Your Credit Score?

If you're like most Americans and you're just starting to build your credit or want to rebuild it, you may be exploring the option of applying for a secured credit credit card. We often get asked whether secured credit cards help your credit score? We will answer this question in much detail below.

Do Secured Credit Cards Help Your Credit Score?

Yes, secured credit cards are an excellent tool that can help you raise your credit score. That said, for a secured credit card to help your credit, you must use them responsibly and make your payments on time. You should try to pay off the entire balance at the end of your billing cycle, and at a minimum, you should make the minimum payment. Missing even a single payment on a secured credit card could cause significant damage to your credit score.

The best way to help raise and help your credit score using a secured credit card is to spend only as much as you can afford to completely pay off at the end of the month. Another tip is to keep the balance on your secured credit card below 10% and to never exceed 30%.

For example, if you have a secured credit card with a $1,000 credit limit, you should keep the balance on your credit card below $100 and never exceed $300. If you leave a high balance on your credit card, your credit score will suffer because the credit reporting bureaus lower the credit score for persons who exceed 30% credit utilization.

Many people have improved their credit score using a secured credit card by using it for a few bills and then paying off the credit card completely. This shows your card issuer that you're using your secured credit card responsibly by charging only what you can afford to completely pay off at the end of the billing cycle.

Within 6 to 12 months of using your secured credit in this manner, you may be able to get your security deposit back and your account converted into a regular unsecured credit card if your card issuer provides them.

What is a Secured Credit Card?

A secured credit card works exactly the same way as does a credit card, however, to obtain a secured credit card, you must place a security deposit with the card issuer. The card issuer will return the deposit to you within 12 to 18 months so long as you make all of your payments on pay off your balance before closing your secured credit card.

To open a secured credit it, you will be asked to place a security deposit using your checking or savings account when you apply for the credit card. If you're approved, the card issuer will deduct the security deposit from your bank account and issue you a credit card that's usually equivalent to the security deposit you placed with them.

For example, if you placed a $700 security deposit, you will be issued a credit card with a $700 credit limit. You would then use the secured credit card and make payments on it just as you would with a regular unsecured credit card.

If you use your secured card responsibly by only charging what you can pay off at the end of the month, and paying off your credit card prior to the due date, your card issuer will return your security deposit to you within 12 to 18 months of using your credit card.

Some card issuers will even go a step forward in that they will convert your unsecured credit card into a regular credit card offered by them. This will allow you to keep the good credit history that you've build with your secured credit card.

Should You Apply For a Secured Credit to Help Your Credit?

If you are someone who is just starting to build their credit or have bad credit, a secured credit card is one of the best ways to help build your credit, especially if you were denied a regular unsecured credit card.

If you do not have credit, meaning you're just starting to build your credit, you will see a positive impact on your credit score much quicker than someone who has bad credit and is trying to rebuild with a secured credit card. This is so because, for those who are just starting off with building their credit, there is no negative information to drag your credit score down.

After you've build and attained a good credit score, you can either ask your card issuer to convert your secured credit card into a regular unsecured credit card, or you can apply for a regular credit card while keeping your secured credit card open.

How Long Does it Take to Build Good Credit Using a Secured Credit Card?

If used properly, you can build credit using a secured credit card within three to six months. That said, if you're starting to build your credit from scratch, you will be able to build credit using a secured credit card much more quickly than someone who has damaged their credit and wants to rebuild it using a secured credit card.

If you have bad credit, it will take you a bit longer to build credit using a secured card. Some users have reported seeing an improvement in their bad credit within 12 to 18 months of responsibly using paying off their credit card. The time it takes you will vary depending on how much damage you've done to your credit.

How Do Lenders View Secured Credit Cards?

If you apply for a credit card or loan in the future and the lender reviews your credit report to determine your creditworthiness, a secured credit card that has good credit history is viewed just as favorable as is a regular unsecured credit card.

To see how a secured credit card has helped your credit card, you should check your credit report and credit score. Most banks now offer you the ability to track your credit score through their online portal. However, if your bank does not offer this feature, you can still check your credit report and score by using Credit Karma, it's totally free.

How Long Does it Take to Get Your Secured Credit Card?

Usually, once the card issuer approves you, it takes a 3 to 7 business days for you to receive your secured credit card. The time it takes to get approved varies, some approvals are instant while other credit applications must be reviewed by an agent before being approved or denied. It really depends on the information in your credit report. If you're just starting to build your credit and have no negative items on your credit report, you may be approved more quickly than someone who has negative marks on his report.

Credit Score Planet Frequently Asked Questions

1. How long does it take to build credit with a secured credit card?

If you're just starting off with building your credit from scratch, you can have a good credit score within 3 to 6 months of using and making timely payments on your credit card. However, if you have bad credit and negative items on your credit report, it could take 12 to 18 months to build good credit using a secured credit card because the negative information will lower your credit score.

2. What is the best-secured credit card?

The two secured credit cards that we recommend are the Bank of America Secured Visa Credit Card and the Discover it Secured Credit Card. These two cards are excellent for someone who want to build or improve their credit while being unable to obtain a regular unsecured credit card.

3. Can you be denied a secured credit card?

Yes, a card issuer can deny your secured credit card application.

4. Why would my secured credit card application be denied?

You can be denied a secured credit card for having negative information on your credit report, such as a foreclosure, bankruptcy, or other negative information. Also, if your income is too low, you may be denied.


Does Leasing a Car Build Credit?

If you're like many of us, you probably don't have the cash to buy a car outright or just don't want to deplete your savings to buy a car and so you've chosen to lease a car. Leasing a car is an excellent option for most, and we often get asked whether leasing a car builds credit? We will answer this question in much detail below.

Does Leasing a Car Build Credit?

Yes, leasing a car can help you build your credit. When you lease a car, your lease will appear on your credit report as an installment loan, so if you make your payments on time, it will help you build great credit, however, if you miss payments on your car lease, you can cause significant damage to your credit.

Leasing a car is just as helpful in building your credit as is financing a car. So, if you're looking to build your credit by leasing a car, you're on the right path.

Why Does Leasing a Car Build Credit?

Leasing a car builds credit because your car lease will appear as an installment account on your credit report. The account will have a balance that's equal to the total payments that you must make on the lease. Whenever you make a payment on your lease, the payment is reported to the credit reporting bureaus, building your credit.

For example, if you leased a Nissan Altima for $200 a month for 36 months, an installment account with a balance of $7,200 will appear on your credit report. As you make payments on your lease account, you will be paying down this balance and building credit.

That said, since your car lease is reported to the credit reporting bureaus, just as making payments will help you build your credit, if you miss even a single payment on your car lease, you will cause significant damage to your credit score.

Usually, if you miss a payment on a lease, you will have a few days from your due date to make the payment, however, if you're 30 days or more late on making a car lease payment, a missed payment mark will be added to your credit report, damaging your credit score.

Should You Buy or Lease a Car To Build Your Credit?

Buying and Leasing a car will help your credit in the same manner. This is so because buying or leasing a car result in a similar account being added to your credit report, which is an installment account.

The only difference is that if you buy a car, the balance on the account will be significantly higher unless you make a large down payment when financing your car.

Whenever you make payments to finance your car or lease it, you will be building your credit because both lease and finance payments are reported to the credit reporting bureaus. So, if you make your payments in full and on time, you will be building your credit.

Benefits & Disadvantages of Leasing a Car vs Buying a Car

Benefits

Here are some of the benefits of leasing a car:

Less Costly

The biggest benefit of leasing a car vs buying a car is that leasing a car is often cheaper than financing a car, your monthly payments are usually lower with a lease and the down payment to get into a lease is often lower than financing a car.

That said, one of the downsides to leasing a car is that you must return the car to the dealership at the end of your lease. When your lease is up, you will have the opportunity to either purchase the car or return it to the dealership.

Lower Repair & Maintenance Cost

The second benefit of leasing a car is the lower cost of repairs. Most people who lease cars pay $0 for repairs to their automobile because new cars come with a manufacturer's warranty that covers the car for 4 to 5 years from the date of purchase or lease. So, if the car breaks down, the dealership will often cover the cost of towing and repairing the vehicle. Also, some automakers cover the cost of maintenance on new cars for the first few years, so you may also benefit from lower maintenance costs.

Latest Model

The third benefit of leasing a car is that you'll always have the latest model. Although not everyone cares to have the latest and greatest model, many people do enjoy driving the newest models that automakers have to offer.

Easier to Return Your Car

If you have leased a car, you know that it is very easy to return your vehicle at the end of your lease. You don't have to do any negotiation as everything is usually agreed upon at the start of the lease. When the time comes to return the vehicle, you simply head over to the dealership, they inspect the vehicle and end your lease. Most dealerships will try to get you into a new lease, but the return process is quite easy.

Disadvantages

Here are some disadvantages of leasing a car:

Restrictions

When you lease a car, there are some rules on what you can and cannot do to the car. For example, you are usually prohibited from modifying or making major changes to the car. Also, when you first lease a car, you agree that you're only permitted to drive a certain amount of miles. Usually, you're permitted to drive 10,000 to 12,000. If you've driven more miles than initially agreed upon, you will be charged a fee for every extra mile that you drove.

Ownership

When you lease a car, even though your name appears on the vehicle registration, you don't own the car. So, when you're finished with your lease, you must return the car. However, when you finance a car and you finish making payments on your car, you own the car.

No Equity

When you lease a car, at the end of the lease you're left with nothing since you are required to return the car. However, when you finance a car, at the end of your loan, you're left with a car that has some equity. You can use the car as a down payment for your next car.

Credit Score To Lease a Car

When you head over to a dealership to lease a car, you must have good credit. Since a car lease requires you to borrow money to pay the dealership, you must have good credit. So, if you do not have a good credit score, you must improve it to be able to lease a car.

To improve your credit score, you should make payments on your credit cards, auto loans, student loans, and home mortgage on time. Also, reduce the balances on all of your credit accounts to improve your credit score.

The third thing you can do to improve your credit score is to avoid applying for too many credit cards within a short period of time, Also, you should periodically check your credit report and dispute any inaccurate information that appears on it.

In the event that you need a car and don't have the time so significantly improve your credit score, you should consider finding a cosigner to sign the car lease with you.

Many people who have bad credit rely on a cosigner to sign the loan with them in order to get approved. That said, the cosigner must have good credit.

That said, if a cosigners signs the car lease with you, you should keep in mind that the cosigner is responsible for making payments on the lease if you fail to do so.

If you fail to make payments on the car lease and the cosigner refuses to make payments, both your credit and the cosigners credit will suffer significant damage.

Credit Score Planet Frequently Asked Questions

1. Does leasing a car help your credit?

Yes, if you lease a car and you make all of your payments in full and on time, your car lease will definitely help you build good credit. However, if you miss payments, you will cause significant damage to your credit.

2. What does leasing a car do to your credit?

Leasing a car can either help your credit or damage it depending on how you handle the lease. When you lease a car, an installment account for your lease is added to your credit report. If you make your car lease payments on time, you will build strong credit, however, if you do not make your payments, you will cause significant damage to your credit.

3. Can I lease a car with a low credit score?

It's difficult to lease a car with a low credit score because auto dealers will look at your credit before leasing a car. You must have decent credit to qualify for a car lease.

4. Do I have to make a down payment on a loan?

Not necessarily. If you have strong credit, some dealerships will allow you to lease a car without making a down payment, while other dealerships may you require you to make a down payment. You should ask the dealership you're going to whether they have $0 down leases.

5.Does a car lease go on your credit?

Yes, your car lease will appear on your credit report as an installment account. The installment account will have a balance that's equivalent to all of the payments on your lease. As you pay your car payment, you'll be paying down the payment on your lease installment account.


Why Do Hard Inquiries Hurt Your Credit Score?

If you're like almost any adult in the United States, you've probably applied for a credit card or loan and noticed that a hard inquiry was added to your credit report. A single hard inquiry may have lowered your credit score by a few points and so you might be wondering why do hard inquiries hurt your credit score? We will answer this question in much detail below.

Why Do Hard Inquiries Hurt Your Credit Score?

Hard inquiries hurt your credit score because the credit reporting bureaus take into account the amount of new credit you've applied for when calculating your credit score. The more new credit you have, the lower your credit score will be because people with more hard inquiries are more likely to default on their financial obligations. As such, hard inquiries lower your credit score so that your credit score accurately reflects the risk you represent to lenders and creditors who want to lend you money.

That said, a single hard inquiry can lower your credit score by 5 to 10 points, and in addition to hurting your credit score, having too many hard inquiries on your credit report may raise red flags to lenders and creditors because it demonstrates that you're actively seeking credit and becoming too reliant on credit because you may be facing some financial trouble. As such, you should avoid submitting too many credit applications within a short period of time to avoid being viewed in a negative light by lenders and creditors.

Also, experts in the field of credit scores state that statistics have demonstrated that persons with 6 or more hard inquiries on their credit report are 8x more likely to default on their financial obligations than someone without any hard inquiries on their credit report.

Having said that, the good news is that hard inquiries only remain on your credit report for 2 years from the date that the lender reviewed a copy of your credit report. After 2 years, the hard inquiry is automatically removed from your credit report.

Although a hard inquiry remains on your credit report for 2 years, many experts state that the impact it has on your credit score is gone within 12 months of the inquiry being added to your credit report.

In the event that a hard inquiry remained on your credit report for more than 2 years, you should either contact the lender who added the hard inquiry and ask them to remove it as it has expired or you can dispute it by filing a dispute with the credit reporting displaying the expired hard inquiry and asking them to remove it.

After you've filed a dispute, the credit reporting bureau will conduct an investigation to verify that the hard inquiry incorrectly remains on your credit report. If they find that it has, they will remove it from your credit report and inform you that it's been removed.

What is a Hard Inquiry?

For those who are unaware, a hard inquiry is placed on your credit report whenever you apply for a credit card, auto loan, auto lease, mortgage to buy a home or take out a student.

A hard inquiry is placed on your credit report indicating that your lender has requested a copy of your credit report to assess your creditworthiness before lending you money.

Although a single hard inquiry will not lower your credit score by much, racking up too many hard inquiries within a short period of time will significantly lower your credit score and shows future lenders that you're actively seeking credit, which may raise red flags for some lenders.

On the other hand, a soft inquiry is added to your credit report whenever a lender or credit reviews your credit report for a purpose other than to make a decision to lend you money. A soft inquiry, unlike a hard inquiry, does not lower your credit score and does not count against you.

How Many Hard Inquiries Should You Have On Your Credit Report?

The fewer the hard inquiries you have on your credit report, the better your credit score will be. That said, there is no magic number of hard inquiries that you should have on your credit report. However, as a rule of thumb, you should not have 6 or more hard inquiries on your credit report.

6 or more hard inquiries raise red flags to lenders because it demonstrates that you're actively seeking credit, which causes many lenders to perceive that you're struggling financially and are therefore seeking credit to stay afloat.

Although there is no specific number of hard inquiries that you should have on your credit report, some lenders and creditors have requirements on the maximum numbers of hard inquiries that you can have on your credit report for them to lend you money.

For example, some mortgage lenders will not approve you for a home loan if you have more than 2 to 3 hard inquiries within the past 2 years. So, if you're planning a major purchase and need to borrow money, you should check with the lender to see their requirements on the number of hard inquiries that you can have on your credit report.

How to Keep Hard Inquiries From Hurting Your Credit Score?

The best thing that you can do to prevent hard inquiries from hurting your credit score is to not apply for too many credit cards or loans within a short period of time. If you want to open a credit card or take out a loan to buy a car or home, you should check your lenders requirements before applying. This saves you from having a hard inquiry placed on your credit report only to be denied the credit card or loan.

You can usually find the lenders requirements on their website. In the event that you can't, just run a Google search for the credit product that you're applying for you and you will find a ton of information on the credit product that you want to apply for.

Do this and you will be able to save yourself from unnecessary hard inquires on your credit report.

Also, if you're not already in the habit of checking your credit report, you should periodically check your credit report to ensure that there is no incorrect negative information that is dragging down your credit score.

If there is inaccurate information, you can file a dispute with the credit reporting bureau displaying the incorrect or inaccurate information to have it removed from your credit report.

Can You Have a Hard Inquiry Removed From Your Credit Report?

Removing a valid hard inquiry is extremely difficult, if not impossible, to do. However, if a hard inquiry has incorrect information or was added to your credit report by mistake, you can either contact the lender and ask them to remove it from your credit report or you can file a dispute with the credit reporting bureau displaying the incorrect hard inquiry, asking them to remove it from your credit report.

Credit Score Planet Frequently Asked Questions

1. How many points does a hard inquiry lower your credit score?

A single hard inquiry can lower your credit score by 5 to 10 points. That said, you should not worry about losing a few points for a hard inquiry, so long as you continue making payments on your credit cards and loans, your credit score will bounce back fairly quickly. That said, if you apply for too many credit cards and loans within a short period of time, you can significantly lower your credit score. So, only apply for the credit product that you need.

2. How many hard inquiries is bad?

There is no magic number of hard inquiries that you can have. However, experts have agreed that anything beyond 6 hard inquiries is too many hard inquiries.

3. Does your credit score go up when a hard inquiry is removed from your credit report?

Yes, your credit score may go up after a hard inquiry is removed from your credit report.

4. Why do hard inquiries lower your credit score?

Hard inquiries lower your credit score because the credit reporting bureaus factor in the number of hard inquiries or new accounts that are on your credit report. They factor them in to alert future lenders and creditors that you've been seeking credit. The more hard inquiries you have, the more risky you will seem to lenders.


Does Getting Rejected Affect Your Credit Score?

If you're like most of us, you may have been rejected when applying for a car loan, home loan, or credit card. Also, you may be wondering whether getting rejected or denied credit affects your credit score? We will answer this question in much detail below.

Does Getting Rejected Affect Your Credit Score?

If you applied for a credit card, home loan, auto loan, or any type of credit and got rejected, the rejection will likely cause a small drop in your credit score. This is so because when you apply for credit and a lender reviews a copy of your credit report, a hard inquiry is placed on it. Each hard inquiry can lower your credit score by 5 to 10 points, depending on your credit. Also, keep in mind that a hard inquiry is added to your credit report regardless of whether you're approved or rejected, so the point drop does not occur merely because of the rejection, but rather the hard inquiry that's placed on your credit report because the lender reviewed it.

That said, a hard inquiry only lasts for two years on your credit report, and experts state that the effect a hard inquiry begins to lessen 12 months after you applied for credit.

If you applied for credit or a loan and more than 2 years have passed since a hard inquiry has been added to your credit report, you should either contact the creditor or lender that placed the hard inquiry on your credit report and ask them to remove it, or you can file a dispute through the credit reporting bureau displaying the hard inquiry to have it removed.

Also, if you got rejected, you should keep in mind that lenders and creditors are required by Federal Law to provide you with an explanation as to why you were denied or rejected credit. Lenders and creditors usually do this by sending you a letter explaining why you were denied, and they will provide you with more information on how to obtain a copy of the credit report they based their decision on.

So, if they used your TransUnion credit report, for example, they will provide you with instructions on how to obtain your TransUnion credit report.

How Does a Hard Inquiry Affect Your Credit Score

A single hard inquiry can lower your credit score by 5 to 10 points. You should not worry too much about your credit score dropping a few points as this is completely normal and the impact of a hard inquiry will lessen with time until it's ultimately removed in two years from the date you applied for credit.

That said, you should not apply for too many credit cards and loans within a short period of time because each application will result in a hard inquiry and each hard inquiry will lower your credit score. So, too many applications within a short period of time can significantly lower your credit score.

Usually, creditors and lenders will check your credit report with one of the credit reporting bureaus, and the bureau they check with will add a hard inquiry to only the credit report they checked. For example, if you apply for a Bank of America Credit Card and they check your Experian Credit report, an inquiry will only be placed on your Experian credit report. The remaining two credit reporting bureaus (Transunion and Equifax) will not add a hard inquiry to your credit report.

That said, some lenders and creditors may check all of your credit reports, at which point a hard inquiry will be added to all of the credit reports that were checked.

So, now you know that whenever you apply for a credit card, student loan, auto loan, auto lease, home mortgage, or in some circumstances employment or renting an apartment, a hard inquiry will be placed on your credit report when a third party requests a copy of your credit report. A hard inquiry is added regardless of whether you're approved or rejected to inform other parties that you've been shopping for credit.

In addition of a hard inquiry being added to your credit report, if other lenders or creditors check your credit report, too many hard inquiries will raise red flags. So, apply for as much credit as you need. Too avoid applying, being rejected, and having a hard inquiry added to your credit report, check the requirements for the lender or creditor before applying. This should significantly reduce the number of hard inquiries on your credit report.

What Should You Do If You're Rejected for a Credit Card or Loan?

If you have been rejected for a credit card, loan, or any other credit item, you should not worry as there a ton of options for anyone looking for credit. One quick tip that will save you from racking up too many hard inquiries is to review the requirements for the credit card or loan that you're applying for before submitting your application.

Many credit cards and lenders post what the minimum requirements are for the credit items they're offering. In the event that the lender did not post the requirements, there are a ton of sites that have probably reviewed the credit item you want to apply for, so check them out and see if your credit score and income meet their requirements.

Common Reasons For Being Rejected

If you've been rejected for a credit card or loan, here are some of the most common reasons you may have been rejected:

  • Short or insufficient credit history - If you do not have sufficient accounts that are open and in good standing, you may be rejected by your lender for having too short or insufficient credit history. The only way to overcome this type of rejection is to have several accounts open and to make timely payments on such accounts. One great way to build credit history is to open a secured credit card if you don't qualify for a regular unsecured credit card, to use such card responsibly, and make complete payments on your account.
  • Too many hard inquiries - The second most common reason why you may have been rejected is for having too many hard inquiries on your credit report. If you have applied for too many credit cards or loans within a short period of time, you may have racked up several hard inquiries. Some lenders and creditors will not open accounts for those with too many hard inquiries because they view the person as becoming too reliant on new credit, which often signals financial trouble. So, if you want to open a new account, you should avoid applying for too many credit items because each time you apply a hard inquiry is placed on your credit report.
  • High credit card balance - Some lenders may have rejected you for having too much debt. As a rule of thumb, you should always keep your credit utilization below 30%, ideally you want to remain between 5% and 10%, so if you're using a lot of your available credit, this may be grounds for your denial of credit. The only way to address this type of denial is to pay down your credit cards so that you're using less of your available credit.
  • Missed payments - If you miss any payments on your account and you're more than 30 days late, your missed payments will be reported to the credit reporting bureaus, significantly lowering your credit score. Having missed or late payments may cause lenders to deny you credit because you have demonstrated that you cannot handle repaying your accounts on time. So, always make sure to make all of your payments in full and on time to avoid this type of rejection.

Credit Score Planet Frequently Asked Questions

1. Does your credit score go down when you get declined?

Whenever you apply for a credit card, your credit score may drop a few points regardless of whether you're approved or denied for the credit card or loan that you applied for. This happens because a hard inquiry is placed on your credit report when a lenders reviews a copy of your credit report to make a decision as to whether to extend credit to you.

2. what happens if you get rejected for a credit card?

If you get rejected for a credit, your credit score may go down a few points because the card issuer probably checked your credit, adding a hard inquiry to your credit report. That said, this small drop would have occurred regardless of whether you were approved or rejected for the credit card that you applied for.

3. Will applying for credit hurt my credit?

Applying for a credit could cause a small but temporary drop in your credit score because a hard inquiry is placed on your credit report when your lender reviewed your credit report. That said, you should not worry too much about the small drop as your credit score will quickly recover.

4. How can I raise my credit score?

You can raise and improve your credit score by making all of your payments on time, lowering the balances on your accounts, keeping your old accounts open, diversifying the type of credit that you have, and periodically checking your credit report and disputing any inaccurate information that appears on your credit report.

5. Is it bad to apply for too many credit cards?

Yes, you should avoid applying for too many credit cards because each time you apply for a credit card, a hard inquiry is placed on your credit report. Even though a single hard inquiry will not cause significant damage to your credit score, too many hard inquiries within a short period of time can significantly hurt your credit score. Also, when future lenders see too many hard inquiries they may be reluctant to lend you money as the hard inquiries show them that you're seeking too much new credit, which serves as a red flag for some lenders.


What Does Bankruptcy Do To Your Credit Score?

If you had a ton of debt that became unmanageable, you may have filed for bankruptcy for a new start. That said, people often mistakenly believe that they will get a totally clean start after filing for bankruptcy, but when it comes to your credit, the story is more complicated. We will explain what bankruptcy does to your credit in much detail below.

What Does Bankruptcy Do To Your Credit Score?

Although filing for bankruptcy offers a fresh start, bankruptcy is literally the worst thing that you can do for your credit. When a bankruptcy is first reported on your credit report, it will cause significant damage to your credit score, often lowering your credit score by more than 150 points. So, if you care about maintaining a good credit score, you should consider an option other than filing for bankruptcy.

Also, the higher your credit score, the bigger the impact a bankruptcy will have on your credit score. For example, if you have a credit score of 700 or more, a bankruptcy can drop your credit score by more than 200 points. However, if you have a 620 credit score, for example, a bankruptcy can drop your credit score by more than 150 points. So, the higher your credit score, the bigger the drop you will experience.

In the United States, there are two types of bankruptcies that you can file. You have the option for filing Chapter 7 bankruptcy or Chapter 13 bankruptcy.

Chapter 7 bankruptcy involves liquidating (selling) your assets and using the proceeds of the sale to pay off your debt. Of course, most people don't have enough assets to pay off their debts, and so the courts will often forgive the remaining debts.

Chapter 13 bankruptcy, on the other hand, involves discharging unsecured debt, such as medical bill debt and credit card debt while allowing the filer to restructure and repay the remaining debts without having to liquidate the filer's assets.

A Chapter 7 bankruptcy remains on your credit report for 10 years from the date that you filed for bankruptcy, whereas Chapter 13 bankruptcy remains on your credit report for 7 years from the date you filed for bankruptcy.

Regardless of which Chapter bankruptcy you file, a bankruptcy will cause significant damage to your credit, however, as the bankruptcy ages, its impact on your credit score will lessen until it's ultimately removed from your credit report. Once a bankruptcy is removed from your credit report, you will notice a significant boost in your credit score.

Filing Bankruptcy After Defaulting on Your Accounts

Most people who file for bankruptcy have already defaulted on making payments on their credit cards and/or loans and so they have already caused significant damage to their credit.

If you file for bankruptcy after defaulting on several of your accounts, you will notice a smaller drop in your credit score because your credit score has already taken a hit from your previous defaults. The lower your credit score, the less damage a bankruptcy will do to your credit because you've already tanked it.

On the other hand, if you file for bankruptcy prior to defaulting on your loans and missing payments on your credit cards, you will likely experience a much larger drop in your credit score when you file for bankruptcy. So, the higher your credit score, the bigger the drop in your credit score when you file for bankruptcy.

Will Bankruptcy Ruin Your Credit Score?

Yes, filing for bankruptcy will destroy your credit score. Filing for bankruptcy is the worst thing that you can do for your credit. If you have a low starting credit score, a bankruptcy will not do as much damage as it would to a good or excellent credit score.

For example, if you have a credit score of 700, you will notice a points drop of up to 200 points, whereas, if you have a credit score of 600, you may notice a point drop of 130 to 150 points.

Can You Get a Credit Card or Loan After Filing For Bankruptcy?

After you file for bankruptcy, negative information will be added to your credit report, making it very difficult to open credit cards and/or obtain loans. Lenders will be very hesitant to lend you money if you have filed for bankruptcy because it shows them that you've defaulted on your monetary obligations in the past and are therefore likely to default on making payments to them if they approve you for a credit card or loan.

If a lenders does approve you for a loan or credit card after you have filed for bankruptcy, they will likely approve you at a high interest rate and unfavorable repayment terms.

If you have filed for bankruptcy, the best thing you can do is apply for a secured credit card. A secured credit is very similar to a regular unsecured credit card. The only difference is that you have to pay a security deposit and the security deposit you pay will become your credit limit.

For example, if you place a $500 deposit, you will have a $500 credit limit. If you make timely payments for 12 to 18 months, your secured credit card will be converted into a regular unsecured credit card. A secured credit card will help your credit just as would a regular credit card. So, it's highly recommended that you open one to improve your credit after filing for bankruptcy.

Can Bankruptcy Improve Your Credit?

Filing for bankruptcy can improve your credit in the long run, however, when you first file for bankruptcy, the bankruptcy will do significant damage to your credit and credit score.

Filing for bankruptcy may help you in the long run because it discharges unsecured debts that you owe, such as credit card debt and medical bill debt. Discharging debts prevents creditors and lenders from continually harassing your for payments. However, it does not remove them from your credit report.

Delinquent accounts will remain on your credit report even though you've filed for bankruptcy. However, delinquent accounts will only remain on your credit report for 7 years from the date that you first became delinquent on your accounts.

After the 7 year period, the delinquent accounts will be automatically removed from your credit report and will no longer negatively impact your credit score.

That said, filing for bankruptcy gives you the opportunity to open new accounts, such as a secured credit card to begin rebuilding your credit without having to worry about repaying old delinquent accounts.

Without filing for bankruptcy you will have to worry about and continue trying to make payments on old accounts while being harassed by collections to make payments. Bankruptcy stops all of this, giving you the opportunity to focus on your future.

How Long Will a Bankruptcy Remain On Your Credit For?

The amount of time that a bankruptcy will remain on your credit report depends on the type of bankruptcy that you filed. A Chapter 7 bankruptcy will remain on your credit report for 10 years from the date that you filed for bankruptcy. However, Chapter 11 bankruptcy will remain on your credit report for 7 years from the date you filed for bankruptcy.

After the 7 or 10 year period is over, the bankruptcy should automatically be removed from your credit report, no longer affecting your credit score. That said, as the bankruptcy ages on your credit report, its impact on your credit score will begin to lessen.

Some consumers have reported being able to attain a 700 credit score after 2 years of filing for bankruptcy. So, you're not doomed if you file for bankruptcy, but it will take some hard work to improve your credit by following the best practices.

To improve your credit after filing for bankruptcy, you should open a secured credit card, use it responsibly, and make all of your payments on time. This should be a solid foundation upon which you can build strong credit.

Credit Score Planet Frequently Asked Questions

1. What happens to your credit after bankruptcy?

After you file for bankruptcy, your credit score will take a hit. The higher your credit score, the more of a point drop you will experience. That said, as the bankruptcy ages, your credit score will begin to recover.

2. Does your credit score go up after a Chapter 7 discharge?

No, after filing for Chapter 7 bankruptcy, most people will experience a significant drop in their credit score.

3. How much does your credit score go up after bankruptcy?

It is highly unlikely for your credit score to go up after filing for bankruptcy. Most people will experience a significant drop in their credit score. People with a 700 or higher credit score often experience a drop of up to 200 points after filing for bankruptcy. While persons with a 600 credit will experience a 130 to 150 drop in their credit score.

4. How long does bankruptcy hurt your credit for?

A chapter 7 bankruptcy remains on your credit for 10 years and a Chapter 11 bankruptcy will remain on your credit report for 7 years. That said, the negative impact of a bankruptcy will lessen as the bankruptcy ages.


Best Way to Pay Off Credit Cards to Improve Credit Score

If you're like most of us, you probably want to do whatever is possible to improve your credit score since everything from buying a home to leasing a car requires a good credit score. We often get asked what is the best way to pay off credit cards to improve your credit score? We will answer this question in much detail below.

What is the Best Way To Pay Off Credit Cards To Improve Credit Score?

The best way to pay off your credit is to pay off the entire balance on your credit card as quickly as possible and keep the balance as low as possible. Many people believe that leaving a balance on their credit cards helps their credit, but this is not true. Your credit score benefits the most from a low credit card balance.

This is so because your credit utilization accounts for 30% of your credit score. The lower your credit utilization, the better your credit score will be. Credit utilization refers to the amount of available credit you're using. The lower your account balances, the less credit you're utilizing, and the better your credit score will be.

That said, we understand that not everyone can completely pay off their credit card and that's totally fine. If you cannot pay off your credit card, you should at least make the minimum payment so that you don't hurt your credit. The minimum payment is the least amount of money that you can pay to keep your credit card account in good standing.

Failing to make the minimum payment on your credit cards will cause significant damage to your credit. This is so because failing to make the minimum payment will result in your account be reported as late to the credit reporting. Having a late payment can cause a significant drop in your credit score.

Should I Pay Off My Credit Card or Leave a Balance?

We often get asked this question and the truth is that leaving a balance on your credit card will not improve your credit score. Your credit score benefits the most from lowering the balance on your credit card. So, the next time you hear someone saying that leaving a balance on your credit card helps your credit, now you know that statement is not true.

This is so because your credit utilization accounts for 30% of your credit score. The lower your credit utilization, the better your credit score will be. Decreasing your credit utilization refers to lowering the balances on your accounts, the lower the balances, the better your credit score will be.

As a rule of thumb, you always want to keep your credit utilization below 30%. If you exceed or use more than 30% of your available credit, you will notice a drop in your credit score.

For example, if you have 3 credit cards with a total credit limit of $10,000, you should try to avoid leaving a balance of $3,000 or more. If you exceed a $3,000 balance, you will notice a drop in your credit score. So, keep your credit card balances as low as possible to help your credit and avoid a drop in your credit score.

Ideally, you should keep your credit card balances between 5% and 10% of your available credit, and never exceed a 30% credit utilization for the best impact on your credit score.

Making Only the Minimum Payment on Your Credit Card

If you want to improve your credit score, you should pay down your account balances. That said, we understand that not everyone has the cash to pay down their account balances. At a minimum, you should always make the minimum payment on your credit card. Failing to make the full minimum payment will cause significant damage to your credit.

Also, if you fail to pay the minimum payment, your card issuer may charge you late fees, as well as impose a penalty APR rate that will significantly increase the amount of interest that you will pay on your credit card debt.

That said, if you cannot completely pay off your credit cards, you should not stress out too much as the average American carries more than $5,000 of credit card debt. That's an amount that's not easy to come up within a short period of time.

That said if you have extra cash and want to improve your credit score by paying off your credit cards, pay off as much as you can afford to pay off.

When paying off your credit cards, you should pay off the credit cards with the highest interest rates first as this will make paying off your credit cards quicker and will save you money in the long run.

CSP Pro Tip: If you only make the minimum payment, it will take you a very long time to pay off your credit card debt. So, always make a payment that exceeds your minimum payment. This will drastically reduce the amount of time it takes to pay off your credit card and this will save you a ton of money in the long run.

How To Pay Off Credit Card Debt?

There are a number of different methods to pay off credit card debt. Here are some of these methods:

  1. Snowball Method - This method involves making all of the minimum payments on your credit cards and paying more than the minimum payment on the credit card with the lowest balance. Once you've paid off the credit card with the lowest balance, you should move on to the next credit card with the next lowest balance. Many people choose this method because making progress on paying off debt will motivate you to continue paying down your debt.
  2. Avalanche Method - The avalanche method is similar to the snowball method, but instead of targetting credit cards with the lowest balances, you will first pay off the credit cards that charge the highest interest rates first. This method will save you more money in the long run since you will end up paying less interest. However, some people still choose the snowball method because they feel like their making more progress by completing paying off the credit cards with the lowest account balances.
  3. Debt Consolidation - The third option that you have to pay off your credit card debt is debt consolidation. Debt consolidation involves taking out a personal loan and using those funds to pay off your credit card debt. Debt consolidation can save you a ton of money because the interest rates on personal loans are typically much lower than those charged by credit card companies. That said, you will need to have good credit to use this option as most lenders will not lend you money if you have poor credit. In addition to paying less interest, debt consolidation may be a good option for you because it will leave you with a single payment to make, you will no longer have to worry about paying off several credit cards.

By How Many Points Will Your Credit Score Improve After Paying Off Your Credit Cards?

Paying off your credit cards and lowering the balances on your credit cards can improve your credit score by more than 50 points. However, the improvement you will notice will vary depending on the information in your credit report. Some people may notice a smaller improvement while others may notice a bigger improvement.

That said, if you pay down your credit card balance, please share your experience and let us know by how many points your credit score improved after paying down your credit card balances.

Credit Score Planet Frequently Asked Questions

1. How much will your credit score increase after paying off your credit cards?

the number of points your credit score will increase is different from one person to another depending on the information in your credit report. That said, some people who have paid down their credit cards have noticed an increase of more than 50 points. Your mileage will vary depending on how significant of a reduction in your account balance you've made, as well as how you've handled other debts.

2. How can I raise my credit score?

You can raise your credit score by performing the following:

  • Making all of your payments on time
  • Reducing the balances on your credit cards and loans
  • Keeping old accounts open
  • Not applying for too many credit cards and loans
  • Periodically checking your credit report and disputing any incorrect information

3. Which credit cards should I pay off first?

You should pay off credit cards with the highest interest rates first to save money. That said, some people prefer paying down credit cards with the lowest balances first because paying off debts gives a sense of accomplishment. That said, choose the method that best suits you.

4. Is it a good idea to pay off your credit cards?

Yes, paying off credit cards is a good idea. So, if you have cash that you've set aside and don't need, you should use it to pay off your credit cards and reduce your account balances.

5. Is it better to pay off your credit card or keep a balance?

Paying off credit cards is better than keeping a balance. This is so because the credit scoring models reward those who have low credit utilization.