Does Making the Minimum Payment On Your Credit Card Hurt Your Credit Score?

If you have a credit card, you might be only making the minimum payment, and so you might be wondering does making only the minimum payment affect or hurt your credit? This post provides you with everything you need to know about only making the minimum payment on your credit card.

Does Making Only The Minimum Payment Hurt Your Credit?

Making only the minimum payment on your credit card keeps your account in good standing, however, if your credit card balance substantially increases, this will increase your credit utilization, possibly lowering your credit score.

You should always strive to keep your credit utilization (how much of your available credit you're using) below 10% and never exceed 30%. If you use more than 30% of your available credit, you will notice a drop in your credit score.

Although making the minimum payment on your credit card keeps your account in good standing because it results in positive payment history being reported on your credit report, if you accumulate too much debt on your credit card, you could see a drop in your credit score.

So, making only the minimum payment can indirectly hurt your credit score. For your payment to positively affect your credit score, you should try to make more than the minimum payment to reduce your credit utilization.

So, what exactly does credit card minimum payment mean?

Your credit card minimum payment is the least amount of money that you are required to pay to keep your account in good standing. Typically, when you apply for a credit card, you sign a credit card agreement, agreeing to make the minimum payment on your credit card.

Failing to make the minimum payment on your credit card will result in a late payment being added to your account status, significantly lowering your credit score.

In fact, a single late payment can lower your credit score by 100 or more points. The higher your credit score, the more your credit score will drop.

Paying your credit card late lowers your credit score because your payment history makes up 35% of your credit score. If you make your payments on time, this factor will boost your credit score. On the flip side, missing payments can cause significant damage to your credit. So, make sure to make your payments on time even it means only making the minimum payment to prevent your account from being reported as late.

How Does Making Only The Minimum Payment Affect Your Credit Score?

Your payment history makes up 35% of your credit score, so making the minimum payment on your credit card actually helps you build positive payment history, which helps your credit score. That said, the amount of your minimum payment has no impact on your credit score, so whether your minimum payment is low ($25) or high ($500+), the impact on your credit is the same.

Increase in credit utilization rate

That said, if you accumulate too much debt on your credit card, the accumulation of debt could lower your credit score as it raises your credit utilization rate.

As a rule of thumb, you should use less than 10% of your available credit and never exceed 30% credit utilization.

If you utilize more than 30% of your available credit, you will notice a significant drop in your credit score.

This is so because your credit utilization makes up 30% of your credit score. So, if you don't pay down your credit card balances by paying more than the minimum payment, you could lower your credit score if the balance on your account continues to grow. This is especially true if you exceed 30% credit utilization.

One of the best things you can do to improve your credit score is to pay off your credit cards. This is so because you will be utilizing 0% of your available credit, which provides an excellent boost to your credit.

Paying more in interest

That said, if you're only making the minimum payment on your credit card, you should keep in mind that you'll be paying more in interest on the balance that you're carrying. This is so because interest charges apply to any balance that you leave on your credit card unless you have a credit card with a 0% introductory APR where you don't pay interest for a limited period of time.

Paying down your credit card debt will take significantly longer

Additionally, if you're only making the minimum payment on your credit card, it will take you significantly longer to pay off your card.

Should You Make a Payment Larger Than Your Minimum Payment?

Even though only making the minimum payment keeps your account in good standing, you should consider making more than the minimum payment on your credit card to reduce the balance on your account.

Reducing the balances on your credit card accounts is great for your credit score because your credit utilization (how much of your available credit you're using) makes up 30% of your credit score. The lower the balances on your credit cards, the better your credit score will be.

If you only make the minimum payment on your credit card, your credit card balance may continue to increase, lowering your credit score.

On the other hand, paying more than the minimum payment helps you keep your credit card balances as low as possible, helping your credit score by reducing your credit utilization.

Additionally, lenders like seeing that borrowers are making more than the minimum payment. They can see the amount of your last payment because it appears on your credit report. If a lender sees that you've made a payment that's larger than your minimum payment, they will view this positively when deciding whether to extend credit to you or lend you money.

That said, if you're working with a small budget or are going through tough financial times, making the minimum payment is perfectly fine as it will keep your account in good standing, which is extremely important to maintain a good credit score.

How to Make More Than the Minimum Payment On Your Credit Card?

You can make more than the minimum payment on your credit card by cutting back your spending on items that are not necessary and reallocating those funds to paying down your credit card. This allows you to pay down your credit card balances faster by making more than your minimum payment.

The second thing that you can do to pay more than the minimum payment is to freelance or get an additional job. This will help you allocate more money towards paying down the balances on your credit card to improve your credit score.

The third thing you can do to reduce your minimum payment and pay down your balances is to refrain from using your credit card until you've lowered the balance on it. This prevents you from adding to your credit card balance and helps your pay down your balance faster.

How is the Minimum Payment On Your Credit Card Calculated?

If you have a credit card balance below $1,000, you will probably see a minimum payment of $25. However, if you have a balance that exceeds $1,000, your minimum payment will likely be set at 2% of your balance. For example, if you have a $2,000 balance on your credit card, your credit card payment would be 2% of $2,000, which comes out to $40. In the event that you owe less than $25 on your credit card, the minimum payment will be set at the balance due. For example, if you only spent $15 on your credit card, your minimum payment will be set at $15.

Frequently Asked Questions (FAQs)

1. What happens to your credit score if you only make the minimum payment on your credit card?

Making the minimum payment on your credit card ensures that your account remains in good standing. However, only paying the minimum payment can increase your credit utilization since you're not significantly paying down your balance, increasing your credit utilization. An increase in credit utilization can lower your credit score, especially if you've exceeded 30% credit utilization.

2. Is it better to only make the minimum payment or pay your card in full?

It is better for your credit score to pay your credit card in full. Making a full payment results in a 0% credit utilization on your account, possibly raising your credit score.

3. What happens if you only pay the minimum payment on your credit card?

If you only make the minimum payment, your account is reported as paid on time. However, you will likely continue to carry a balance. If your credit card balance increases too much, your credit score could drop.

4. Does paying more than the minimum payment help your credit score?

Although merely paying more than the minimum payment does not boost your credit score. If you pay down a significant portion of your credit card balance, you should notice an improvement in your credit score.


Does Applying For a Mortgage Affect Your Credit Score?

If you are thinking about applying for a mortgage, you may be wondering: does applying for a mortgage affect your credit score? This post provides you with everything you need to know about how applying for a mortgage affects your credit score.

Does Applying For a Mortgage Affect Your Credit Score?

Yes, applying for a mortgage can lower your credit score because each time you submit a mortgage application, a hard inquiry is added to your credit report when a lender reviews a copy of your credit report. Although a single hard inquiry will slightly lower your credit score, accumulating too many hard inquiries within a short period of time can significantly lower your credit score.

That said, when shopping for a mortgage, credit scoring models treat hard inquiries made within a 14 to 45 day period while shopping for a mortgage as a single hard inquiry.

So, to avoid multiple hard inquiries from negatively affecting your credit score, you should do your mortgage shopping within a 14 day period to ensure that all mortgage-related hard inquiries count as only a single hard inquiry.

Hard inquiries are not negative marks, but they can lower your credit score. A single had inquiry can lower your credit score by 3 to 5 points, but multiple hard inquiries within a short period of time can significantly lower your credit score because they should lenders that you're seeking too much new credit within a short period of time, which can be indicative of financial troubles.

Hard inquiries affect your credit score because credit scoring models take into account the number of hard inquiries you have on your credit report. As a rule of thumb, you should have no more than 2 to 3 hard inquiries on your credit report. Anything more and you could see a drop in your credit score.

Even though several hard inquiries may appear on your credit report when shopping for a mortgage, the credit scoring models will consider them as a single hard inquiry when calculating your credit score.

That said, when applying for a mortgage, it's okay to rack up several hard inquiries so long as you make them within a 14-day window so that all hard inquiries gained as a result of shopping for a mortgage count as a single hard inquiry.

Newer credit scoring models provide a 45-day window, but stay on the safe side and conduct your mortgage shopping within the 14-day window just in case your lender relies on older credit scoring models that use the 14-day window.

That said, even if takes you longer than 14 to 45 days to look for the best mortgage, the temporary impact on your credit score may be well worth the savings you'll gain by continuing to shop for the mortgage with the best terms and interest rate.

How Long Do Hard Inquiries Remain On Your Credit Report For?

A hard inquiry is placed on your credit report when a lender reviews a copy of your credit report after you've applied for a credit card, loan, or mortgage. Can cause a small drop in your credit score, but that drop is temporary in nature. In fact, hard inquiries only remain on your credit report for 2 years from the date your lender reviews a copy of your credit report. After the 2 year period, the hard inquiry will be automatically removed from your credit report. That said, experts agree that the effect that a hard inquiry has on your credit score only lasts for 12 months. After 12 months, a hard inquiry will no longer affect your credit score. After 2 years, it will be automatically removed from your credit report permanently.

Consider Mortgage Prequalification To Avoid Hard Inquiries

If you want to avoid having any hard inquiries added to your credit report, you should consider pre-qualifying for a mortgage. According to Bank of America, mortgage prequalification is an early step in the process of buying a home. To perform a prequalification, you must provide your lender with basic information about yourself and your financial situation.

The lender then performs a soft pull of your credit report to review your credit report. Soft pulls, more appropriately known as soft credit checks do not affect your credit score as do hard inquiries. So, if you want to avoid having hard inquiries added to your credit report, you can opt for mortgage prequalification instead.

Mortgage prequalification should provide you with very helpful information, such as whether you're likely to qualify for a mortgage, the types of mortgages you qualify for, and the maximum amount of money that the lender will allow you to borrow.

If you find that the mortgage terms, interest rate, and the amount you're allowed to borrow work for you, you can go ahead and submit a full mortgage application. When you submit the full application, only then will a hard inquiry be placed on your credit report.

Also, prequalification helps you narrow down your home search. For example, if you only pre-qualify for a $400,000 mortgage, you'll know that you shouldn't be looking at $700,000 homes.

So, if you're thinking about buying a home and you do not want too many hard inquiries being added to your credit report, you should definitely consider mortgage prequalification before submitting full fledged mortgage applications that will undoubtedly result in hard inquiries being placed on your credit report as lenders review your credit report.

Does a Mortgage Affect Your Credit Score?

Having a mortgage can greatly affect your credit score. If you make your mortgage on time, you can build excellent credit. This is so because your payment history makes up 35% of your credit score. So, making timely payments on your mortgage will boost your credit score.

Additionally, opening a mortgage account can improve your credit mix. Your credit mix makes up 10% of your credit score, and it rewards persons who have a diverse mix of credit accounts with a higher credit score. Opening a variety of different accounts, such as credit cards, car loans, mortgages, and student loans will increase the diversity of your accounts, contributing to a higher credit score.

That said, although a mortgage can increase your credit score in the long run, when you first apply for a mortgage, you could see a small but temporary drop in your credit score. This small drop is caused by the hard inquiry that is placed on your credit report when a lender reviews a copy of your credit report.

That said, the impact that a hard inquiry has on your credit report is temporary. In fact, after 12 months, a hard inquiry will no longer affect your credit score, and it will be removed after 2 years from the date it was added to your credit report.

If you've shopped around for a mortgage, racking up multiple hard inquiries. The hard inquiries that are added to your credit report while you shop for a mortgage will all be counted as a single inquiry when calculating your credit score. That said, for them to be counted as a single hard inquiry the inquiries must be made within a 14 to 45-day window.

What Are Some Things That You Should and Should Not Do When You Are Trying To Qualify For a Mortgage?

Here are some things that you should and should not do when you foresee that you are going to apply for a mortgage:

1. Continue Making Your Credit Card and Loan Payments On Time

When applying for a mortgage, you should make sure to continue making your credit card and loan payments on time as missing even a single payment can cause significant damage to your credit. Also, having a recent late payment on your credit report will make it difficult for you to qualify for a mortgage with reasonable terms. So, make sure to continue making all of your payments on time.

2. Don't Apply For New Credit Cards and Loans

If you know that you will be applying for a mortgage in the foreseeable future, you should refrain from applying for new credit cards or loans because it could show that you're seeking new credit, which is not good when applying for a mortgage. Also, applying for a credit card or loan could lower your credit score because of the hard inquiry that's added to your credit report when a lender reviews a copy of your credit report. So, don't apply for new credit cards or loans for the best chances of being approved and to qualify for good terms and interest rate.

3. Keep Old Accounts in Good Standing Open

If you have an old credit card that is in good standing, you should not close such an account prior to applying for a mortgage. This is so because old accounts can actually improve your credit score because the credit scoring models take into account your account age. The older your accounts, the better your credit score will be. Also, oftentimes, closing a credit card could actually lower your credit score. So, to avoid this, do not close any accounts prior to being approved for a mortgage.

4. Reduce Your Credit Card Balances

If you want to boost your credit score prior to applying for a mortgage, you should consider paying down your credit card balance. Paying down your credit card balances can significantly improve your credit score especially if you're using too much of your available credit. Your credit utilization makes up 30% of your credit score, so the more debt you have on your credit cards, the lower your credit score will be. So, pay down your credit card balances to improve your credit score prior to applying for a mortgage.

Frequently Asked Questions (FAQs)

1. Do mortgage applications affect your credit score?

Yes, mortgage applications can affect your credit score. In fact they can lower your credit score by 10 to 40 points, depending on how many applications you submit. On average, it takes approximately 12 months for your credit score to recover after submitting mortgage applications.

2. How much does your credit score drop when applying for a mortgage?

Your credit score can drop by 10 to 40 points when applying for a mortgage. That said, most applicants saw an average drop of 15 points.

3. Does mortgage prequalification affect your credit score?

No, mortgage prequalification does not affect your credit score so long as your lender conducts a soft credit check. A soft credit check does not impact your credit score and it's commonly used for performing mortgage prequalification. That said, ask your lender whether their prequalification results in a soft inquiry or hard inquiry.

4. When should you apply for a mortgage to buy a home?

You should apply for a mortgage to buy a home when you have the necessary funds to place as a downpayment for your new home.


Do Taxes Affect Your Credit?

If you're like most Americans, you probably pay your taxes every year. So, you might be wondering does paying your taxes build credit, or does failing to pay taxes affect your credit score? This post provides you with everything you need to know about how paying your taxes or failing to pay your taxes affects your credit.

Does Paying Taxes Build Credit?

No, paying taxes does not build credit because your tax payments are not reported to the credit reporting bureaus. Therefore, paying your taxes on time will have no effect on your credit score. Also, failing to pay your taxes on time has no direct impact on your credit score because your payments are not reported to the credit reporting bureaus.

Although paying taxes has no direct impact on your credit score, it could have an indirect impact on your credit score.

For example, if you are having difficulty paying for your taxes out of pocket, and you use your credit card to make your tax payment, if you don't pay the minimum payment on your credit card when its due, a late payment notation is added to your credit report, significantly lowering your credit score.

Late Payment Marks

Late payments are negative marks that are added to your accounts when you fail to pay the minimum payment on your credit card. If a late payment mark is added to your credit report, it could cause a significant drop in your credit score.

Late payments remain on your credit report for 7 years from the date you missed your payment. After the 7 year period, the late payment mark is automatically removed from your credit report.

So, if you do decide to use your credit card to pay your taxes, you should make sure to make at least the minimum payment on time to avoid your credit card payment from being reported as late.

If you have the money in your checking account, you should consider paying directly from your checking account to avoid the convenience fees that the IRS charges for using a credit card.

Credit Card Interest

Not only will you be liable for paying the convenience fees, but if you don't pay off your credit card at the end of your billing cycle, your card issuer will charge you interest on the money you've borrowed using your credit card.

Credit card interest rates are very high, ranging from 15% to 30% for some credit cards, making them very expensive to use for paying tax bills. So, you should consider the amount of interest you will have to pay on the balance before using your credit card to pay your taxes.

Credit Utilization

Another thing to keep in mind when using a credit card is that charging your taxes to your credit card can potentially increase your credit utilization. Your credit utilization refers to how much of your available credit you're using. The higher your credit utilization, the lower your credit score will be.

If you plan on immediately paying off your credit card, this isn't something you should spend too much time thinking about. But, if you plan on leaving a balance on your credit card, you should consider how much of your available credit you will be utilizing.

As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30% utilization. If you exceed 30% credit utilization, you will notice a significant drop in your credit score.

For example, if you have a $10,000 credit limit, and you use your credit card to pay a tax bill of $4,500, your credit utilization would be 45%, which places you above the 30% credit utilization, causing your credit score to drop.

So, consider your credit utilization before using a credit card to pay your taxes.

Does Failing to Pay Your Taxes Affect Your Credit Score?

Although failing to make your tax payment does not directly hurt your credit, the U.S Government is capable of selling the unpaid taxes you owe to a private collection agency. The collection agency can cause significant damage to your credit by placing a collection account on your credit report.

Collection Account

Collection accounts are very negative items that can appear on your credit report and cause your credit score to drop by 100 or more points. In fact, the higher your credit score, the bigger the drop you will experience as a result of a collection account being added to your credit report.

If a collection account is added to your credit report, it can remain on it for 7 years from the date you failed to make your tax payment. When a collection is first added to your credit report it will have a huge negative effect on your credit score. However, as the collection account ages, its impact on your credit score will lessen until it's ultimately removed from your credit report.

Paying a collection account after it has been added to your credit report will not remove it from your credit report. So, to avoid having a collection account added to your credit report, you should make your tax payment on time.

Property Tax Lien

In addition to a collection account being added to your credit report, if you fail to pay your taxes on time, the IRS can place a lien on your property. Although IRS Tax Liens no longer appear on your credit report, if the IRS places a lien on your property, it could sell your property and use the proceeds to recover some or all of the money that you owe them.

Does Paying Your Taxes Late Affect Your Credit Score?

No, paying your taxes late does not affect your credit score because your tax payments are not reported to the credit reporting bureaus. Also, any tax liens that result from late tax payments no longer appear on your credit report, therefore, they have no impact on your credit score.

That said, paying your taxes late may result in the addition of a collection account to your credit report, indirectly affecting your credit score.

Collection accounts are negative items that are added to your credit report whenever a collection agency takes over an unpaid debt of yours. Collection accounts remain on your credit report for 7 years and they have a substantial negative impact on your credit score.

To avoid having a collection account from being added to your credit report, pay your taxes on time. This will help you avoid the IRS commission a collection agency to collect the outstanding amount that's due by adding a collection account to your credit report.

What Are Some Other Consequences For Failing To Pay Your Taxes?

If you fail to pay your taxes on time, the IRS can place a tax lien on your property, allowing it to sell your property and use the proceeds of the sale to recover some or all of the money that you owe them. So, to avoid a tax lien, you should make your tax payments on time. If you don't have the cash to make the entire payment, ask the IRS about installment payments, where you make a certain number of payments until you've paid off the balance.

Another consequence that we discussed in much detail is that the IRS can task a collection agency to recover the outstanding amount from you. Once a collection agency is tasked, it will attempt to collect the outstanding amount from you.

In the process of collecting the outstanding taxes, the collection agency may add a collection account to your credit report, significantly lowering your credit score.

If a collection account is added to your credit report, it will lower your score and remain on your credit report for 7 years from the date you missed your tax payment. After the 7 year period, the collection account will automatically be removed from your credit report.

In addition to a lien being placed on your property and a collection account added to your credit report, failing to pay your taxes on time can result in the IRS assessing penalties and additional fees on your account.

Frequently Asked Questions (FAQs)

1. Do taxes affect your credit score?

No, taxes do not affect your credit score because your payments or lack thereof are not reported to the credit reporting bureaus. So, whether you pay or fail to pay, no negative payments will appear on your credit report. However, if the IRS tasks a collection agency to collect the taxes from you, a collection account could appear on your credit report, lowering your credit score.

2. Does the IRS report your payments on credit report?

No, the IRS does not report your tax payments on your credit report.

3. Can not paying taxes affect your credit score?

Yes, not paying your taxes can indirectly affect your credit score. For example, if you fail to pay your taxes, the IRS could contact a collection agency to have them collect your outstanding taxes. The collection agency can cause damage to your credit by placing a collection account on your credit report.

4. What happens to my credit if I pay my taxes late?

Paying your taxes late will have no impact on your credit as tax payments are not reported to the credit reporting bureaus.


Does Paying Gym Membership Build Credit?

If you're like many people, you probably have a gym membership to work out, and so you might be wondering does paying for a gym membership build credit? This post provides you with everything you need to know about how a gym membership affects your credit score.

Does Paying For a Gym Membership Build Credit?

Paying for a gym member does not build credit because your account status is not reported to the credit reporting bureaus. Therefore, making all of your payments on time will not improve your credit score. Also, missed or late gym membership payments are not reported to the credit reporting bureaus, so they will not directly affect your credit score.

That said, being seriously delinquent on your gym payments can indirectly cause damage to your credit score. For example, if you miss several gym payments, your gym may task a collection agency with collecting the outstanding amount due on your account.

The collection agency may cause significant damage to your credit by adding a collection account to your credit report.

A single collection account can cause your credit score to drop by 100 or more points. The higher your credit score, the bigger the drop will be.

If a collection account is added to your credit report, it will remain on your credit report for 7 years. After the 7 year period, the collection account will automatically be removed from your credit report.

Paying a collection account will not remove it from your credit report. In fact, a paid and unpaid collection account have the same negative effect on your credit score. So, make you gym membership payments to avoid having a collection account added to your credit report.

So, although gym membership payments are not like credit cards where missing a single payment can cause damage to your credit. But, if you're seriously delinquent and your account gets sent to collections, the collection agency can cause damage to your credit by adding a collection account to your credit report.

Why Does Paying For a Gym Membership Build Credit?

Paying for a gym membership does not build credit because most, if not all, gyms don't report your payments to the credit reporting bureaus. Since your account status is not reported to the credit bureaus, the information does not appear on your credit report. Therefore, it has no impact on your credit score.

Does Making Your Gym Membership Payment Late Affect Your Credit Score?

No, making your gym membership payment late will not affect your credit score because your account status is not reported to the credit reporting bureaus. Therefore, late payments are not reported to the credit reporting bureaus. That said, if your account is seriously delinquent, you could indirectly cause damage to your credit. This is so because if you're seriously delinquent, your gym could send your account to collections to recover some of the unpaid membership fees. In the process of collecting the unpaid gym dues, a collection agency can add a collection account to your credit report. A collection account can significantly lower your credit score. So, if you're seriously delinquent on your gym membership, you should consider paying any outstanding dues to avoid having your account sent to collections and a collection account added to your credit report.

What Damage Can a Collection Account Cause To Your Credit?

A collection account is a negative item that can be added to your credit report. A single collection account can lower your credit score by 100 or more points. The higher your credit score, the bigger the drop will be.

Once a collection account is added to your credit report, it will remain on it for 7 years from the date you first missed your gym membership payment. After the 7 year period, the collection account will automatically be removed from your credit report.

If you have a collection account on your credit report, not only will the collection account lower your credit score, but it will also make it more difficult to borrow money especially if the collection account remains unpaid.

Lenders don't like to see that you have an unpaid collection account on your credit report, so they may require you to pay it off or they may deny you credit.

So, it's best to avoid having your gym account from being sent to collections. So, if a collection account appears on your credit report, you should consider paying it off if you have the funds to do so.

That said, paid and unpaid collections accounts have the same effect on your credit score. So, paying a collection account will not reduce its impact on your credit score. Therefore, it's best to pay your gym membership on time to avoid having your account sent to collections and a collection account being added to your credit report.

Can You Remove a Collection Account From Your Credit Report?

You can only remove a collection account from your credit report if the collection account contains wrong information or was added to your credit report by error. Removing a valid collection account from your credit report is not possible.

That said, if a collection account has been wrongfully added to your credit report, you can file a dispute with the credit reporting bureau showing the collection account to have it removed from your credit report.

After you dispute a collection account, the credit reporting bureau will conduct an investigation to determine whether the collection account is valid. If the investigation reveals that there is an error in the collection account reported, it will remove it from your credit report.

However, if the investigation reveals that the account is valid and no errors appear in the information being reported, the collection account will remain on your credit report for 7 years from the date you missed your first payment. After the 7 year period, the collection account will automatically be removed from your credit report.

So, to avoid having a collection account being added to your credit report in the first place, you should make sure to pay off any outstanding membership dues before your account is sent to collections.

Frequently Asked Questions (FAQs)

1. Does paying gym membership affect your credit score?

No, paying for a gym membership does not affect your credit score because your payments or lack of payments are not reported to the credit reporting bureaus.

2. Can a gym membership ruin your credit score?

A gym membership can ruin your credit score in the event that you fail to pay your gym membership fee, causing your gym to transfer the outstanding amount due to a collection agency. In attempting to collect the outstanding debt from you, the collection agency may place a collection account on your credit report, causing significant damage to your credit.

3. Can cancelling a gym membership affect your credit score?

No, cancelling a gym membership has no effect on your credit score. That said, make sure to completely pay off your account to ensure that you owe nothing to the gym. This prevents an outstanding amount that's due from being reported to collections.

4. Does unpaid gym membership affect your credit score?

An unpaid gym membership could affect your credit score in the event that you're extremely delinquent and your account is sent to collection. A collection agency can lower your credit score by adding a collection account to your credit report.


Does Applying For Unemployment Affect Your Credit Score?

If you recently became unemployed, chances are that you're thinking about filing for unemployment to help you get through rough times. So, you might be wondering, does apply for or filing for unemployment affect your credit score? This post provides you with everything you need to know about how applying for unemployment affects your credit and credit score.

Does Filing For Unemployment Affect Your Credit Score?

No, filing or applying for unemployment benefits does not affect your credit score because it does not appear on your credit report, and therefore, it does not affect your credit score. Only the name of your employer may appear on your credit report. Your employment status and income information do not appear on your credit report and therefore do not affect your credit score.

So, when you file for unemployment, rest assured that doing so does not impact your credit in any way, shape, or form. That said, your employer information may appear on your credit report only if you provided the name of your employer on a credit application. Even though the name of your employer may appear on your credit report, your employer information has no impact on your credit as it's on there for identity verification purposes only.

That said, being on unemployment can indirectly affect your credit score. For example, if you were earning a higher income while being gainfully employed, going on unemployment may reduce the amount of money you receive. This could impact your ability to make your credit card and loan payments on time.

Your payment history makes up 35% of your credit score, and to maintain a good credit score, you must make your credit card and loan payments on time. Missing even a single credit card or loan payment can cause significant damage to your credit as a late payment notation is added to your account status.

A late payment can knock down your credit score by 100 or more points. So, it's imperative that you continue to make your payments to avoid significant damage to your credit.

That said, being on unemployment may make it difficult for you to continue making timely payments on your credit. For this reason, it could affect your credit score.

Also, unemployment could cause you to use your credit card more often to cover expenses that you cannot cover without them. Using your credit card too frequently can increase your credit utilization (how much of your available credit you're using), causing your credit score to drop.

As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30%. If you exceed 30% credit utilization, you could notice a significant drop in your credit score. So, this is another way that relying on unemployment could negatively impact your credit score.

Is Filing For Unemployment Listed On Your Credit Report?

No, filing for unemployment is not listed on your credit report. So, any party that reviews your credit report will not know that you're receiving unemployment unless you disclose that fact to them.

That said, if you review a copy of your credit report, you might see a section titled "employers" that lists your current and past employers. This is the only employment information that can appear on your credit report.

The employer information that appears on your credit report is gathered from information that you provided to lenders when applying for a credit card or loan.

For example, if you go to your local Mercedes Benz dealership and submit a credit application to qualify for a lease or finance a vehicle, the employer information you provide on that application is submitted to the credit bureaus. So, if you listed the name of your employer, it may be provided to the credit bureaus, causing it to appear on your credit report.

That said, other than the name of your past or current employer, no other employment information is added to your credit report.

The other information that you'll find in your credit file is your personal information, such as name, DOB, social security number, addresses, and account statuses (credit cards, loans, negative information, and records of legal events affecting your credit score).

Does Receiving Unemployment Benefits Impact Your Credit Score?

No, receiving unemployment benefits does not impact your credit score because unemployment benefits are not reported to the credit reporting bureaus. Therefore, they neither appear on your credit report nor do they impact your credit score.

So, rest assured that receiving unemployment benefits has no impact on your credit score. That said, failing to repay credit card debt or loans as a result of your unemployment can impact your credit score.

Failing to pay credit cards or loans can impact your credit because late payments are reported to the credit reporting bureaus. A single late payment on a credit card or loan can cause your credit score to drop by 100 or more points. So, to maintain a good credit score even while unemployed, you should keep making your payments in full and on time.

Also, to prevent being unemployed from lowering your credit score, you should refrain from using your credit card as accumulating a large credit card balance can significantly lower your credit score, especially if you use 30% or more of your available credit. So, keep your account balances as low as possible to maintain a good credit score.

What Factors Affect Your Credit Score?

Here are all of the factors that affect your credit score:

  1. Payment History - Your payment history makes up 35% of your credit score, so it's important to make your payments on credit cards, car loans, personal loans, student loans, and mortgage to keep your account in good standing so that that this factor positively affects your credit score. Missing even a single payment on such accounts could cause significant damage to your credit, so make sure to make all of your payments on time for the best impact on your credit score.
  2. Credit Utilization - Your credit utilization refers to how much of your available credit you're using. The lower your credit utilization, the better this factor affects your credit score. Your credit utilization makes up 30% of your credit score, so to build good credit, you must maintain a healthy credit utilization. As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30%. If you use more than 30% of your available credit, you will notice a significant drop in your credit score. For example, if you have a total credit card limit of $10,000, you should keep the balances on your accounts below $1,000 (10%) and never leave a balance of $3,000 (30%) or more as this will significantly reduce your credit score. So, if you have high credit card balances and you want to improve your credit score, you should pay down the balances on your credit cards as your credit utilization accounts for a huge chunk of your credit score.
  3. Length of Credit History - The length of your credit history is the third largest factor impacting your credit score. This factors favors persons who have old accounts that are open. It looks at the average age of all of your accounts. The older your accounts, the better your credit score will be. So, if you want to improve your credit, keep old accounts open even if you rarely use to the boost the average age of your accounts.
  4. Credit Mix - Your credix mix, which refers to the diversity of open accounts on your credit report accounts for 10% of your credit scores. The more types of open accounts you have, the better this factor impacts your credit score. So, having diverse open accounts, such as credit cards, auto loans, student loans, or mortgages can boost your credit score. So, it's worth having account diversity since this provides a boost to your credit score. Credit diversity boosts your credit score because it shows lenders how you're handling repayment of different types of debts.
  5. New Credit - The number of hard inquiries and new accounts on your credit report account for 10% of your credit score. For this factor to positively impact your credit score, you shouldn't have too many hard inquiries nor too many new accounts opened within a short period of time. The less hard inquiries and new accounts you have, the better your credit score will be. Whenever you apply for a credit card or loan, a hard inquiry is placed on your credit report, slightly lowering your credit score. Although a single hard inquiry doesn't lower your credit score by much, you should avoid too many credit applications because several hard inquiries could significantly lower your credit score. So, for the best impact to your credit score, avoid submitting too many credit applications within a short period of time.

Frequently Asked Questions (FAQs)

1. Can someone who checks your credit report know that you've filed for unemployment?

No, if someone checks your credit report, they will not be able to know that you've filed for unemployment as it does not appear on your credit report. Also, unemployment information is part of the public record, so no one can tell whether you've filed for or received unemployment benefits without you disclosing that information to them.

2. Does collecting unemployment affect your credit score?

No, collecting unemployment does not affect your credit score because unemployment does not appear on your credit report. Since it doesn't appear on your credit report, it's not factored into your credit score.

3. Does employment affect your credit score?

No, unemployment does not affect your credit score because it does not appear on your credit report. Therefore, it is not factored into your credit score.

4. Does unemployment lower your credit score?

No, unemployment does not appear on your credit report, therefore, it cannot lower your credit score.


Does Your Job Affect Your Credit Score?

Whether you have a job or you're unemployed, you might be wondering, does your job affect your credit score? This post provides you with everything you need to know about how your job affects your credit score.

Does Your Job Affect Your Credit Score?

Although the name of your employer may appear on your credit report, your job does not affect your credit score. Also, whether you're employed or unemployed, your employment status does not appear on your credit report nor does it affect your credit score.

Having a job does not affect your credit score because even though your employer information may appear on your credit report, the credit scoring models do not take it into account when calculating your credit score.

For example, whether you're an award-winning surgeon or a trash collector, your job has no impact on your credit score.

So, at this point, you might be wondering, where does the employer information on your credit report come from?

The employer information that appears on your credit report was likely provided by you on a credit application for a credit card or loan.

For example, if you went to a dealership and submitted a credit application for an auto loan if you list the name of your employer on the application, the dealership might provide your employer information to the credit bureaus. If the credit bureaus receive the name of your employer, it will be added to your credit report.

That said, your employer information has no effect on your credit score because it's not indicative of how you have handled repayment of debt, so it's not factored into your credit score.

So, even though you may have lost your job, your loss of employment does not affect your credit score. In fact, the fact that you lost your job does not even appear on your credit report.

Failing to Make Credit Card and Loan Payments On Time

That said, losing your job could indirectly affect your credit score. For example, if you don't have enough money to make your credit card and loan payments on time, you could cause significant damage to your credit.

This is so because your payment history makes up 35% of your credit score. When you make your payments on time, this factor boosts your credit score. However, missing even a single payment on a credit card or loan could cause significant damage to your credit. So, try to continue making your payments on time to avoid having your loss of employment affect your credit score.

Becoming Too Reliant On Credit Cards

The second way that losing your job could affect your credit score is if you become too reliant on your credit cards.

If you end up using too much of your available credit limit, you could hurt your credit score because your credit utilization makes up 30% of your credit score. The more of your available credit you use, the lower your credit score will be.

As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30%. If you use 30% or more of your available credit, you will notice a significant drop in your credit score.

So, if you've become unemployed, you should refrain from over-relying on your credit cards if you do not have a way of paying them back. This is so because you may increase your credit utilization, lowering your credit score.

Why Doesn't Your Job Affect Your Credit Score?

Your job doesn't affect your credit score because employers do not report your job to the credit reporting bureaus. In fact, there is no way for your employer to report your job to the credit reporting bureaus. The only reason your employer information may appear on your credit report is from a credit application that you submitted along with the name of your employer. Employment information and income information do not appear on your credit report. Even though your employer may appear on your credit report, it does not affect your credit score because the credit scoring models do not take into account your employer information.

What Does Affect Your Credit Score?

Now that you know that your job or lack of job has no impact on your credit score, let's discuss some of the items that do affect your credit score:

  1. Payment History - Your payment history affects your credit score. In fact, it makes up 35% of your credit score and looks at whether your making payments on your credit cards, loans, and other types of debt. If you make all of your payments on time, this factor will boost your credit score. However, if you miss payments on credit cards or loans, you could cause significant damage to your credit. Missing even a single payment can lower your credit score by 100 or more points, so make sure to make all of your payments on time so that this factor positively impacts your credit score.
  2. Credit Utilization - Your credit utilization refers to how much of your available credit you're using. Typically, the higher your credit utilization (the more of your available credit you're using), the lower your credit score will be. As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30%. If you use more than 30% of your available credit, you will notice a significant drop in your credit score. So, keeping your credit utilization low is important as this factor makes up 30% of your credit score.
  3. Age of Accounts - The average age of your accounts makes up 15% of your credit score. The older your accounts, the better your credit score will be. So, if you have old accounts that are open, such as an old credit card, you should keep it open so that it continues to provide a boost for your credit score.
  4. Credit Mix - Your credit mix refers to the diversity of accounts on your credit report. It makes up 10% of your credit score. Typically, this factor rewards those who are handling different types of debts, such as credit cards, car loans, student loans, and mortgages. The more diverse your accounts, the better your credit score will be.
  5. New Credit - New open accounts and hard inquiries account for 10% of your credit score. The older your accounts and the less hard inquiries you have on your credit report, the better this factor impacts your credit score. Whenever you submit a credit application, such as a credit card application or loan application, a hard inquiry is added to your credit report, slightly lowering your credit score. Although a single hard inquiry will not lower your credit score by much, if you accumulate too many hard inquiries within a short period of time, you will significantly lower your credit score.

Frequently Asked Questions (FAQs)

1. Does being unemployed hurt your credit score?

No, being unemployed does not hurt your credit score because the fact that you're unemployed does not appear on your credit report, therefore, it has no impact on your credit score.

2. Does having a job affect your credit score?

No, having a job does not affect your credit score. That said, having a job can help you make your credit card and loan payments on time, boosting your credit score.

3. Does having a job increase your credit score?

No, having a job does not increase your credit, but if you do use your income to pay your credit cards and loans on time, you can improve your credit score. This is so because your payment history makes up 35% of your credit score, so making your payments on time can provide a nice boost to your credit score.

4. Is your employment status listed on your credit report?

No, your employment status is not listed on your credit report, therefore, it does not affect your credit.


Does Carrying a Balance On Your Credit Card Help Your Credit Score?

If you're like most Americans, you likely have a credit card and you may be wondering whether carrying a balance on your credit card helps your credit score? We will answer this question in much detail below.

Does Carrying a Balance On Your Credit Card Help Your Credit Score?

Carrying a balance on your credit card does not help your credit score. In fact, carrying a balance on your credit card can actually hurt your credit score because it increases your credit utilization. Credit utilization refers to how much of your available credit you utilize. The more of your available credit you use, the lower your credit score will be. So, if you've been told that carrying a balance helps your credit, now you know that doing so does not, and can actually lower your credit score.

Keeping the balance on your credit card as low as possible is one of the best things that you can do to help your credit after making all of your payments on time. 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. So, if you're considering leaving a balance on your credit card in hopes of raising your credit score, now you know that paying down your balances is one of the best things that you can to improve your credit score.

As a rule of thumb, you should strive to keep your credit utilization below 10% and never exceed 30% credit utilization. If you exceed 30% credit utilization, you will significantly lower your credit score. So, always pay off as much debt as you can afford to pay off. For example, if you have a total credit limit of $10,000, you should not allow your credit card balance to exceed $3,000.

Additionally, to help your credit score, you should make all of your payments on time. Your payments account for 35% of your credit score, so making them on time is the best thing you can do to boost your credit score. Missing even a single payment on your credit cards or loans can cause significant damage to your credit score. So, make sure to make all of your payments on time.

Some people believe that to keep their account active, they must keep a balance on their credit card. This is not the case. Using your credit card for small monthly payments is sufficient to keep your account from being closed for being dormant (unused).

So, if you were wondering whether carrying a balance on your credit card helps your credit score, now you know that it does not. You will just be paying interest for no reason. Therefore, if you have a credit card with a balance, pay it off if you can afford to do so because doing that will save you money on interest.

Why Should You Avoid Carrying a Balance On Your Credit Card?

1. Avoid Paying Interest On Your Credit Card Balance

You should pay down the balance on your credit card to avoid paying interest on your credit card balance. Credit cards often charge consumers high-interest rates on the balances they carry on their credit cards. Interest can be avoided by paying off the credit card in full at the end of your billing cycle. So, if you want to save money on interest, pay off your credit card at the end of each billing cycle.

2. Reduce Your Credit Utilization

You should avoid carrying a balance on your credit card to reduce your credit utilization (how much of your available credit you're using). Reducing your credit utilization is good for your credit score because it accounts for 30% of your credit score. The lower your credit utilization, the better your credit score will be. As a rule of thumb, you should keep your balances below 10% of your available credit and never use 30% or more of your available credit. If you utilize more than 30% of your available credit, you will significantly lower your credit score.

3. Prevent Yourself From Accumulating Too Much Debt

Paying off your credit card instead of carrying a balance allows you to stop yourself from accumulating too much debt. Spending and accumulating debt can happy quickly and while you least expect it. So, paying off your credit cards and avoid leaving a high balance on your credit card accounts.

What is a Good Balance to Carry On Your Credit Card?

Carrying no balance on your credit card is the best thing that you can do for your credit because the lower your credit utilization, the better your credit score will be. However, we know that life happens sometimes and it's not possible to pay off your credit card. As a rule of thumb, you should utilize no more than 10% of your available credit and never exceed 30% credit utilization. If you use more than 30% of your available credit, your credit score will drop.

For example, if you have credit cards with a limit of $10,000, you should keep the balances on your credit cards below $3,000 for the best impact on your credit score.

If you find yourself utilizing too much of your available credit, you should contact your card issuer and request a credit limit increase. If your request is approved, your credit limit will be increased, lowering your credit utilization. That said, before you request a credit limit increase, you should be aware that your card issuer may add a hard inquiry to your credit report when it reviews your credit report to make a decision on your request for a credit limit increase. Nevertheless, a single hard inquiry will only lower your credit score by a few points. Just don't ask for too many credit limit increases within a short period of time, and you should be good.

Bottom Line

The bottom line is that carrying a balance on your credit card is not good for your credit nor is it good for your credit score. One of the best things that you can do for your credit score is to pay off all the balances on your credit cards. This is so because the lower the dollar amount of your available credit you use, the better your credit score will be. So, the next time your close friend or relative tell you that carrying a balance improves your credit score, now you know that it does not improve it and could actually lower your score.


Will Paying Off a Personal Loan Early Hurt Your Credit Score?

If you've taken out a personal loan and you have some extra cash, you might be wondering, does paying off a personal loan early hurt your credit score? We will answer this question in much detail below.

Will Paying Off a Personal Loan Early Hurt Your Credit Score?

Oftentimes paying off a personal loan early can either have no impact on your credit score or can hurt your credit score because it can potentially reduce your credit mix, which refers to the diversity of the active accounts on your credit report. This is especially true if the loan you're paying off is your only personal loan. Your credit mix accounts for 10% of your credit score, the more diverse the type of active accounts on your credit report, the higher your credit score will be.

That said, the drop caused by paying off a personal loan early is temporary and if there is nothing negative on your credit report, your credit score should rebound within just a few months of paying off your personal loan.

Paying off a personal loan early will not remove it from your credit report. Paid off personal loans where you haven't missed any payments, remain on your credit report for 10 years from the date you paid off the loan. After the 10 year period, the loan is automatically removed from your credit report.

However, if you've paid off a personal loan where you've made late payments on the account that were reported on your credit report, such loans will remain on your credit report for 7 years from the date you missed your first payment on the loan. After the 7 year period, the loan will be automatically removed from your credit report.

Why does paying off a personal loan hurt your credit score?

Paying off a personal loan early can lower your credit score because your paid-off account will show up as closed on your credit report, reducing your credit mix. Having a diverse credit mix accounts for 10% of your credit score, so closing the account may lower your credit score, especially if it's your only personal loan or installment account.

Also, paying off a personal loan may hurt your credit score because open accounts that you're actively making payments on show lenders how you're managing your credit right now, whereas paid-off accounts only show lenders how you've handled debt repayment in the past.

So, if you want to improve your credit score, you should keep your personal open and avoid paying it off early. Continuing to make payments on your personal loan can be better for your credit score than paying off the loan early.

Keeping your personal loan open for longer can improve a thin credit file. A thin credit file is one that does not contain sufficient credit information. Paying off a personal loan for longer can help you remedy a thin credit file. So, even if you have the funds to pay off your loan early, it could be beneficial to keep the loan open for longer to establish good credit history.

Additionally, keeping a personal loan open for longer improves your credit mix. Your credit mix refers to the diversity of the accounts that are currently open, such as credit cards and installment accounts. Personal loans are a type of installment account that can improve your credit mix and raise your credit score.

Should You Pay Off Your Personal Loan Early?

When deciding whether to pay off your personal loan, there are a couple of things that you should consider, here are some of those things:

1. Interest On Your Personal Loan

If the interest rate on your personal loan is very high, it may make sense for you to pay off the loan early in order to avoid paying interest on the outstanding amount that's due. However, before you go ahead and pay off your personal loan, you should first check with your lender to see if they charge a pre-payment penalty. A pre-payment penalty is a penalty fee that lenders charge to those who pay off their loans early. Also, if you have a precomputed interest loan, this means that the total interest was calculated and fixed at the beginning of the loan. So, if you were to pay off the loan early, you would already be paying the interest on the loan. If you have a precomputed interest loan, you will not save any money on interest as you would be paying it by paying off the loan. So, consider these things before rushing to pay off your personal loan early.

2. Lowering Your DTI (Debt to Income Ratio)

If you're applying for a home loan or financing a vehicle, your lender may require you to lower your debt to income ratio, meaning you must pay down some of your debts to be approved for credit. Most lenders require your debt to income ratio to be below 43%, and ideally, your DTI should be 31% or less. Paying off a personal loan can be a way to reduce your debt to income ratio, making it more likely that you'll be approved for a home loan or other types of credit. So, if you're going to purchase a home and need financing in the near future, you should consider paying off your personal loan to lower your DTI in order to be approved.

3. Other Types of Debt

If you have a lot of open credit cards and other loans with debt, it may make sense for you to pay off your personal loan in order to tackle paying off your other debts. This is especially true if you have other personal loans, credit cards, student loans, and auto loans. Even if paying off your personal loan causes a small drop in your credit score, don't worry too much about it as the drop is likely temporary. In fact, your credit score will likely improve within a short period of time.

When Should You Avoid Paying Off a Personal Loan Early?

Here are some situations in which you should avoid paying off a personal loan early:

1. Interest On Your Personal Loan is Very Low

If you've taken out a personal loan and the interest rate on your personal loan is very low, paying it off may not be worth parting with your cash. For example, if you have a personal loan at a 5.0% interest rate, and you have credit card debt at 15%, it will make more sense for you to pay off your credit card debt before tackling your personal loan debt because you will be paying significantly more on the debt you've accumulated on your credit cards.

2. Keep Your Cash On Hand

Experts have come to a consensus that every person should have three to six months' worth of expenses saved up for an emergency. So, if you have extra cash burning a hole in your pocket, you should save it up and only make the monthly payment on your personal loan until you've saved up at least three to six months' worth of expenses. Once you've established an emergency fund, it makes sense to contribute more money to pay off your personal loan debt.

3. Your Personal Loan is Substantially Paid Off

If your personal loan is substantially paid off an you only have a few payments remaining, it doesn't make sense to pay it off early because you will not save much on interest by paying it off early. In this case, it makes sense to continue making payments on the loan in order to improve your credit via timely monthly payments. It will only make sense to pay off your loan early if you need to lower your DTI quickly in order to qualify for a large purchase such as borrowing money to buy a home or finance a vehicle.

Conclusion: Should you pay off your personal loan early?

If you have extra cash on hand and you don't mind your credit score temporarily drop some points, you should go ahead and pay off your personal loan. However, if you're planning on making a large purchase, such as a home, in the near future and your debt to income ratio is within a good range, you should hold off on paying off your personal loan to maintain the best credit score possible while qualify for a mortgage.

Also, it may make sense to pay off a personal loan if you don't have credit card debt that you're paying a high interest rate on. If you do have credit card debt, you're better off paying down your cards because the interest rate on credit cards is typically much higher than that of personal loans.

So, ultimately it's up to you, but now you have the knowledge necessary to weigh the pros and cons of paying off your personal loan early.

Frequently Asked Questions (FAQs)

1. Why does my credit score drop when I pay off a loan?

When you pay off a loan, including a personal loan, you're essentially closing down an installment account. Closing an installment account can lower your credit score because it may reduce your credit mix (diversity of accounts on your credit report). Your credit mix accounts for 10% of your credit score, and may be reduced when you pay off a personal loan.

2. Will my credit score increase if I pay off a personal loan?

It is unlikely that paying off a personal loan will increase your credit score. In fact, your credit score will either stay the same or drop a few points when you pay off a personal loan. Your credit score may temporarily drop because you're closing an installment account which can reduce the diversity of your accounts.

3. Should I pay off my personal loan early?

If your personal loan is your only loan, you should hold off on paying it early as it can reduce your credit mix and result in a lower credit score. Also, you should pay off other higher interest rate debt before paying off a personal loan. It really all depends on your situation. This blog post discusses the pros and cons of paying off a personal loan early, weigh them and make your decision.

4. Can paying off a personal loan hurt my credit?

Yes, paying off a personal loan can result in a slightly lower credit score. That said, a drop in your credit score is likely to be temporary and so long as nothing negative on your credit report appears, it should rebound within just a few short months.

5. What debt should I pay off first?

You should pay off your highest interest rate debt first.


What is a Thin Credit File?

If you're just beginning to build your credit and you attempted to check your credit report and credit score, you may have received the notification that you have a thin credit file. What does a thin credit file mean, and how can you avoid receiving this notification in the future? We will explain the answers to these questions in much detail below.

What is a Thin Credit File?

The term thin credit file refers to having a limited credit history because there is not sufficient information in your credit report based on which a credit score can be generated for you. Typically, consumers who are just beginning to build their credit may receive this notification because a credit score cannot be calculated for them.

Having a thin makes it very difficult to be approved for credit cards or loans. That said, this can easily be remedied by opening credit cards, loans, or other types of debt and making payments on time to establish a good credit history.

Having good credit is essential to doing thing, such as financing a vehicle, buying a home, taking out a personal loan, or even renting an apartment, in some cases. That said, everyone who begins building their credit history begins with a thin credit file where there is insufficient information in his or her credit file. So, don't be discouraged if you've received this notification.

You may receive the thin credit file notation in the following situations:

  1. You're an adult and you just began to establish your credit
  2. You're young and you've just started to build your credit
  3. You've never opened a credit card or taken out a loan
  4. You recently immigrated to the United States and you're just starting to build your credit
  5. You used credit in the past, but years have passed since you've used credit
  6. You don't use credit cards and don't take out a loan, and rely primarily on the use of cash

Regardless of which situation you find yourself in, if you only recently opened a credit card or taken out a loan, you will begin to build credit. That said, it takes some time for your card issuer or lender to furnish information to the credit bureaus. Once your new credit card or loan history is sent to the credit bureaus, you will begin building your credit file. After just a few months of having your credit card or loan, you will likely stop receiving the thin credit file notification as your credit report will have enough information based on which a credit score can be calculated for you.

Thing You Can Do to Stop Receiving a Thin Credit File Notification

If you've received a notification stating that you have a thin credit file, here are some ways to avoid receiving it in the future:

1. Open a Secured Credit Card

If you've applied for a regular credit card and were denied because you have limited credit history (aka thin credit file), you should try applying for a secured credit card. Secured credit cards are significantly easier to be approved for than regular unsecured credit cards. Secured credit cards work the same way as do regular credit cards, and they can help you build your credit so that you can avoid being denied in the future for having limited credit history.

The only difference between a secured credit card and a regular credit card is that with a secured credit card, you must place a cash security deposit with the card issuer. Usually, your deposit determines your credit limit. For example, if you apply for a Bank of America Secured Credit Card, you must place a minimum deposit of $300, and you will be given a $300 credit limit.

If you use the credit card responsibly and make all of your payments on time, your card issuer will usually refund the security deposit to you within six to twelve months of opening the account. At that point, your card issuer may convert your secured credit card into a regular non-secured credit card.

Secured credit cards are a great way to build credit and they function as do regular credit cards, meaning you can use them just as you would a regular credit card, and your account status is reported to the credit reporting bureaus as is a regular credit card.

Make payments on your secured credit card, and your payments will be reported to the credit bureaus, boosting your credit score. That said, make sure to make all of your payments on time as missing even a single payment can cause significant damage to your credit score.

2. Take Out a Credit Builder Loan

If you have a thin credit file and you want to improve your credit file in order to qualify for regular credit cards and unsecured personal loans, you should explore the option of taking out a credit builder loan. A credit builder loan is different from a regular personal loan in that you're required to make all of the payments on the loan first. After you've made all of the payments, you will receive the funds from the loan. Meanwhile, all of the payments you've made on the loan will have been reported to the credit reporting bureaus, boosting your credit score and establish a credit file for you. You can find credit builder loans at some banks and many credit unions.

3. Become An Authorized User

The quickest way to fatten your credit file is to become an authorized user on someone else's credit card. That said, you should only become an authorized user on another person's credit card if you trust them to use the account responsibly. When you become an authorized user, all of the account history associated with the credit card is added to your credit report, instantly creating credit history for you. As an authorized user, you will be issued a credit card with your name on it, and you can use it as can the primary account holder. However, only the primary account holder is responsible for making payments on the account. So, you should only add yourself as an authorized user on someone's account if they trust you to use the card responsibly and you trust them to make payments on time. If the primary account holder misses payments, your credit will be negatively impacted.

4. Find a Co-signer & Take Out a Loan

If you have a thin credit file, one way to build credit is to finance a vehicle by asking a close friend or relative to cosign the car loan with you. When someone cosigns a loan with you, his or her credit is factored in and you're more likely to be approved if you have a cosigner who has good credit. This is especially true if you have a thin credit file. That said, if you default on the loan, you will damage your own credit as well as the cosigner's credit because you're both responsible for the repayment of the money borrowed.

What Are the Consequences of Having a Thin Credit File?

If you have a thin credit file, you will face significant difficult opening credit cards, taking out personal loans, and obtaining financing for a home. You will face difficulty because most lenders rely on information in your credit report and your credit score when deciding whether to lend you money. Without that information, they have no way of telling how you've handled past finances, and how likely you are to pay the money you're seeking to borrow. When there is sufficient information in your credit report, lenders can look at that information and assess your creditworthiness. So, if you've been denied a credit card or loan for having a thin credit file, follow the steps outlines in the section above to build your credit.

If You Have a Thin Credit File, Will You Have a Credit Score?

If you have a thin credit file, you will likely not have a credit score. You won't have a credit score because there is too little information on your credit report based on which a credit score can be calculated for you. To obtain a credit score, you must have credit cards, loans, or other types of credit that report your account statuses to the credit report. The reported accounts will give the credit reporting bureaus information based on which they can calculate a credit score for you. That said, to have a credit score, you do not need 10 accounts, all you need to have is at least one account open for a minimum of six months. One account that reports to the three major credit reporting bureaus for at least six months.

How Many People in the United States Have a Thin Credit File?

According to Experian, approximately 62 million Americans have a thin credit file. So, if you thought you were the only one to have a thin credit file, think again. Having a thin credit file means that they have very few, if any, open accounts that report to the credit reporting bureaus. If you have a very thin credit file, you may not have a credit score as there is simply too little information in your credit report based on which a credit score can be calculated for you.

Frequently Asked Questions (FAQs)

1. What is a thin credit file and why is it bad?

Having a thin credit file is defined as having too little information in your credit report based on which a credit score can be calculated for you. For example, if you do not have any credit cards or loans, you will have a thin credit file, and will likely be denied credit.

2. How do you fix a thin credit file?

You can fix a thin credit file by opening credit cards, taking out personal loans, and making payments on those accounts. Your account status will be reported to the credit bureaus, and your credit report will be populated with credit information. This allows a credit score to be calculated for you, and allows lenders to assess your creditworthiness.

3. How can I thicken my credit file?

You can thicken your credit file by opening credit cards and taking out loans. Your lenders will then furnish your account status to the credit reporting bureaus, thickening your credit file.

4. How can I quickly build credit?

You can quickly build your credit by opening credit cards and taking out loans and paying them on time, keeping your account balances low, and refraining from applying for too much new credit within a short period of time.


Should You Cancel Unused Credit Cards?

If you have too many credit cards, you might be wondering whether you should cancel your unused credit cards? This post provides you with everything you need to know about canceling unused credit cards.

Should You Cancel Unused Credit Cards?

You should not cancel unused credit cards because canceling them could cause your credit score to drop. Canceling your credit card could cause a credit score drop because it may increase your credit utilization, reduce your credit mix, and reduce your average account age. We will now explain the reasons why you should not cancel credit cards even if you do not use them in more detail below.

Canceling an unused credit card could increase your credit utilization because when you close a credit card account, you're losing the credit limit associated with your account. If you carry balances on your credit cards, you will increase your credit utilization. An increase in credit utilization can potentially lower your credit score.

Your credit utilization (how much of your available credit you're using) accounts for 30% of your credit score. The lower your credit utilization, the better the impact of this factor will be on your credit score.

For example, if you have 2 credit cards, one credit card with a $10,000 credit limits and a second credit card with a $5,000 credit limit. If you have a balance of $3,000 on your first credit card and a $0 balance on your second credit, you're utilizing 20% of your total available credit. However, if you close your second credit card with a $5,000 limit, you will now be utilizing 30% of your total available credit, which can significantly lower your credit score.

As a rule of thumb, you should strive to keep your credit utilization as low as possible for the best impact on your credit score. Experts agree that you should keep your credit utilization below 10% and never exceed 30% credit utilization. Using more than 30% of your available credit will cause a significant drop in your credit score.

The second reason you should not cancel or close an unused credit card is that it has the potential to reduce your credit mix, also known as the diversity of your accounts. If this is your only credit card, closing it could reduce your credit mix. Your credit mix accounts for 10% of your credit score, so closing a credit card account can potentially reduce your mix of credit, lowering your credit score. So, for the best impact on your credit score, you should avoid closing unused credit cards.

The third reason you should avoid closing an unused credit card is that it can reduce the average age of your accounts. The average age of all of your accounts makes up 15% of your credit score. So, the older your accounts, the better of an impact this factor will have on your credit score. Closing down a credit card reduces the average age of your accounts. So, for the best impact on your credit score, you should keep old accounts open for longer, especially if they have a positive payment history associated with them.

Conclusion - Keeping your old credit card accounts open by charging small amounts on them and making payments in full can do wonders for your credit score because it allows you to keep your credit utilization low, it diversifies the types of accounts that you have, and it contributes to an older account age. These are all great things for your credit score.

CSP Pro Tip - If you have a credit card that you rarely use, you should use it for small purchases and make payments on it to avoid having the account shut down for being dormant.

How Does Cancelling An Unused Credit Card Affect Your Credit Score?

Cancelling an unused credit card or credit card that you rarely use can negatively affect your credit score for a number of reasons.

First, canceling an unused credit card can result in a higher credit utilization (how much of your total available credit you're using). Higher credit utilization can lower your credit score, especially if closing your credit card results in a credit utilization of 30% or more. As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30%. Exceeding 30% credit utilization can significantly lower your credit score. So, consider whether closing your credit card would increase your credit utilization prior to closing your account.

Second, closing an unused credit card can slightly lower your credit score because it may reduce the diversity of your account. Your credit diversity, also known as credit mix, accounts for 10% of your credit score. Whenever you close an account, you can potentially reduce the diversity of your accounts, lowering your credit score. So, if this is your only credit card, you should avoid closing it for your credit mix factor to have the best impact on your credit score.

Third, canceling an unused credit card will reduce the overall age of your accounts. Your account age makes up 15% of your credit score. The older your accounts, the better this factor will impact your credit score. So, to increase your account, you should keep old accounts that are in good standing open for longer, meaning you shouldn't close your credit card account for this impact on your credit score.

What Should You Do With Your Unused Credit Card Instead of Cancelling It?

If you have an unused credit card and you're debating whether to keep your credit card open or close it, we will share some things that you can do with your unused credit card instead of cancelling it.

The best way to make use of a rarely used credit card is to use it as a card for making some of your monthly recurring payments. For example, you can use it to make automatic monthly payments for your cell phone bill, Netflix subscription, cable subscription, and other recurring monthly bills. This keeps your account active and avoids having the account being canceled by your card issuer for being dormant (unused).

That said, make sure to set up payment reminders to make your credit card payments on time. Missing even a single payment on your credit card account can cause significant damage to your credit score. Continuing to use your credit card responsibly and making on-time payments will further boost your credit score.

When Does It Make Sense To Cancel An Unused Credit Card?

It makes sense to cancel an unused credit card if you're paying a high annual fee on your credit card and you're not taking full advantage of the perks and rewards offered by your credit card. That said, you should keep the negative consequences to your credit score in mind before closing an unused credit card.

For example, if you know that you're going to be making a large purchase, such as buying a home or financing a vehicle in the near future, you should hold off on canceling your unused credit card as it will likely cause a drop in your credit score. After making your purchase, then close the credit card if you see that's the correct course of action.

How to Properly Cancel and Close Unused Credit Card Accounts?

If you've determined that closing your credit card is something that you want to do, here is how you can properly close your credit card account so you don't run into any trouble.

  1. Cancel all of the automatic payments being charged onto your account
  2. Pay off the balance on your credit card, leaving a $0 balance on the card
  3. Contact your credit card issuer and confirm that the balance on your credit card is at $0
  4. Ask them to cancel the credit card
  5. Ask your card issuer to follow up with a letter or email confirming that the account has been closed with a $0 balance

CSP Pro Tip - If you want to cancel multiple credit cards, it's best if you do not cancel all of them within a short period of time, space out the closure over a course of several months. This will help you avoid a large increase in your credit utilization. You should keep credit cards with high limits open so that you can benefit from a low credit utilization rate.

Closing An Unused Credit Card Without Hurting Your Credit Score

There is a way to cancel an unused credit card without hurting your credit score, but for this method to work, you must have two credit cards with the same card issuer. For example, if you have two Bank of America Credit Cards, and for some reason, you want to close one of your accounts, you can ask your financial institution to transfer over the credit line from one of your cards to the other card.

This prevents the closure of your account from increasing your credit utilization since you're shifting the credit limit that would have been lost to another credit card.

For example, if you have two credit cards with Bank of America, one with a $5,000 credit limit and a second card with a $4,000 credit limit. You can ask them to transfer over your $4,000 credit limit to your credit card with a $5,000 credit limit, giving you a total of $9,000 credit limit on a single credit card after canceling the second card. This way there will be no increase in your credit utilization.

The Bottom Line

For the best impact on your credit score, you should keep old credit cards open. You should avoid closing them to keep your credit score as high as possible. This is especially true if you plan on making major purchases in the near future, such as financing a vehicle or even taking out a loan to buy a home. So, consider the consequences of closing an unused credit card vs the benefits, and then make your decision. If you have any general questions or comments, please feel free to leave them in the comments section below.

Frequently Asked Questions (FAQs)

1. Why should you avoid canceling unused credit cards?

You should avoid cancelling unused credit cards because it can potentially increase your credit utilization, reduce your credit mix, and reduce the overall age of your accounts, which can all lower your credit score. For the best impact to your credit score, you should keep old account even if they're not used very often open.

2. Do unused credit cards affect your credit score?

Yes, unused accounts in good standing can positively affect your credit score. So, even if you rarely use them, you should keep them open for the best impact to your credit score.

3. Is it bad to have a credit card that you rarely use?

There is nothing wrong with having a credit card that you rarely use. However, you should keep in mind that if you do not use your credit card for a long period of time, your card issuer may consider the account as dormant, and may therefore either lower your credit limit or close your credit card.

4. What is the major disadvantage of closing an unused credit card?

The major disadvantage of closing a credit card is that it can potentially increase the amount of total available credit that you're using, lowering your credit score.