By Emma Diehl |
Credit, relay |
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When a refund goes to a canceled credit card, it may seem like that cash is lost for good. However, getting your money back just requires a few calls to the credit card company and the merchant, and a little patience.
There are ways to avoid a refund going to a canceled credit card and methods to recover the cash if it’s stuck in limbo between the retailer and the credit card company. Keep reading to learn how to avoid this situation, and what your options are.
• When you cancel a credit card, you may be eligible for a refund of any remaining balance or fees.
• The refund process varies depending on the credit card issuer’s policies.
• It’s important to contact the credit card issuer to inquire about any potential refunds.
• Keep track of your cancellation request and follow up if necessary to ensure you receive your refund.
• Be aware of any potential fees or penalties associated with canceling a credit card.
Can You Stop a Refund From Going to a Canceled Credit Card?
To avoid a refund going to a canceled credit card, the easiest approach is to reach out to the merchant before starting the refund process.
Ask the business if it’s willing to refund the purchase in a different way. That’ll likely mean store credit or a gift card. In some instances, it could mean receiving cash back or refunding the purchase to a different credit card.
Going to the business first may involve calling customer service or visiting a bricks-and-mortar location. If the business is willing to refund the purchase differently, you’ll avoid the long process of getting back a refund that went to a canceled credit card.
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Steps for Getting a Refund on a Canceled Credit Card
When a refund is going to a canceled credit card, you have a few options to ensure the credit doesn’t go to waste. It can help to know a little about how credit cards work, but it’s not essential.
1. Check if Your Canceled Card Account Is Still Open
In the event that a credit card was canceled due to theft or loss, don’t worry. If the account is still open under a new card number, the refund from the merchant will be credited back to the new card.
2. See if the Refund Was Accepted by the Card Issuer
When there’s no longer a credit card associated with the account, things get trickier. What happens next will vary based on how long ago the cardholder closed the account.
If the customer can still log in to their account, they may see the refund reflected online. But if the account is long closed and can’t be accessed online, first the customer should reach out to the merchant and ask for the Acquirer Reference Number. Armed with this information, they can then talk to the credit card company.
3. Request the Refund
If the merchant says the refund was posted to the old account, call the credit card company and request a refund via check. This is when the Acquirer Reference Number can come in handy. In some cases, the credit card company or bank may ask for a written request.
4. Be Patient
A standard refund usually takes a week, but getting a refund from a canceled credit card can take longer, depending on merchant policy, credit card company policy, and even the returned item or service.
Generally, expect a refund between seven and 14 business days after your request. If 30 business days elapse with no refund, it’s time to follow up with the merchant.
5. Return Directly to the Merchant for the Refund
If 30 days pass without a refund, it may be time to return to the store to track down the refund.
In some cases, the card issuer may reject a refund to a closed account and send it back to the store. Reach out to the store’s customer service and ask if it received a bounce back from the credit card issuer. If the store did, customers might be able to request a refund in the form of store credit or cash.
This process can be complicated or tedious, depending on the retailer’s size and bookkeeping system. An independent retailer is unlikely to have a customer service department, so going to the store with receipts and reference numbers could help speed up the process.
How To Avoid a Refund Going to a Canceled Card
Asking for an alternative refund method is one way to avoid a refund going to a canceled card, but here are a few other ways to steer clear of the lengthy process.
• Conduct an audit of transactions before canceling a credit card. Are there any purchases you plan to return? Keeping the card open until the refund is processed could make sense.
• Keep an eye on finances. A money tracking app can help you keep tabs on your spending, avoiding the confusion of which refund goes on what card. Some services also offer free credit monitoring and a debt payoff planner.
• Think long and hard before canceling a credit card. Canceling a credit card can harm your credit score, and canceling one out of the blue may lead to more issues than benefits. Closing a card without thinking it through could lead to refunds on a canceled card.
The simplest way to avoid a refund going to a canceled card is by going straight to the merchant and asking them to refund the amount through an alternative means. That could mean getting store credit, but it’ll sidestep the credit card company and get your money back faster. If a refund does go to a canceled card, it’s not lost for good. It’ll just take a few steps to get the refund.
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FAQ
Can I get a refund that was sent to a closed credit card?
Yes, but getting the refund will depend on if the account is still open, how long the card has been closed, and the credit card company’s policies.
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It’s natural to be curious about what credit score you start with at 18. You might assume you start with the lowest possible score of 300, but that’s not how it works. Instead, your credit score doesn’t exist until you begin generating financial data.
Good credit is vital to financial independence. Establishing credit early on can help you qualify for favorable rates and terms when you need to borrow money for a car or home. Here’s what you need to know about beginning credit scores and how you can build yours.
What Is Your Starting Credit Score?
Essentially, your credit score doesn’t exist until you begin building credit. Before that, if a financial institution requests your credit history, they will find nothing. Only when you use a credit card or pay utility bills will there be something to put on your credit report.
This doesn’t mean you will start with the lowest score possible, though. Neither will you start with a high credit score, since that requires a strong credit history and proof of solid financial habits. But if you get off on the wrong foot by not paying your credit card bill on time, you may start with a lower credit score.
Usually, you need at least one or two revolving accounts that have been active for at least three to six months to begin building credit. Creditors and lenders use various credit scoring models to determine your creditworthiness. Therefore, your number may differ across different platforms. For example, your FICO® Score and VantageScore range between 300 and 850, while other models, such as your auto loan score, may go up to 900 or higher.
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A key factor in determining your credit score is whether you pay your bills on time. In fact, when calculating your FICO score, 35% comes from your payment history. Because it plays a significant role in your overall score, paying your bills on time is crucial.
Credit Utilization
Your credit limit is the maximum dollar amount you can charge on a credit card. Credit bureaus determine your credit utilization by dividing your outstanding balance by your total revolving credit limits. This shows credit bureaus how much credit you are using against the total credit you have.
A good rule of thumb is to keep your credit utilization ratio under 30%, both for each credit card and overall. Maintaining a low credit card balance or paying it off monthly will help you maintain a lower credit utilization ratio. This factor accounts for 30% of your overall FICO score.
Length of Credit History
The longevity of your credit history also plays a part in calculating your credit score. Credit bureaus will look at the number of years your accounts have been open. The length of your credit history accounts for 15% of your FICO score.
Credit is usually broken down into three categories: revolving credit, installment credit, and service credit. With revolving credit, creditors give you a specific credit limit to spend as you wish. You can make the minimum monthly payments or choose to pay off your credit card balance every month. If you make the minimum payment, the remaining balance will carry over to the next month until you pay off the entire balance.
Installment credit is used for auto, mortgage, and other loans. With this type of credit, the creditor establishes a fixed monthly payment you agree to pay back over a set amount of time. Demonstrating that you can handle multiple types of credit can increase your credit score.
Last, service credit is when companies like home utilities or a cell phone provider report your payment history to a credit bureau. On-time payments to these businesses can help build your credit. This accounts for 10% of your FICO score.
When you apply for new credit, creditors conduct a hard inquiry. This means they assess your creditworthiness by looking at your overall credit history. New credit inquiries and new accounts account for 10% of your score. Triggering a large number of credit inquiries in a short amount of time is considered risky and will negatively impact your credit score.
What Is Insufficient Credit History?
If you don’t have any credit accounts or your credit accounts are not reported to the three major credit bureaus (Experian, TransUnion, and Equifax), you may have an insufficient credit history.
Even if you establish credit but go a long time without using it or cancel your credit cards, your credit information might be removed from your credit file. In this case, you may also have an insufficient credit history.
How to Establish Credit History
Building credit might seem daunting. However, there are a few strategies to begin establishing a credit history from scratch. Here’s how.
Apply for a Secured Credit Card
Secured credit cards require applicants to put down a deposit. This deposit will usually act as your credit limit. You will still have to make monthly payments since the deposit is used as protection or collateral if you default.
A secured card will help you establish credit as long as the creditor reports to one of the three major credit bureaus. A secured credit card can act as a stepping stone to unsecured credit cards and other forms of financing in the future.
Become an Authorized User
To become an authorized user, someone needs to add you to an existing account held in their name. You will receive your own credit card, and the account history will go on your credit report.
Keep in mind, however, that since you’re not solely responsible for payments and the management of the account, this account may have less of an impact on your credit score than if you were the sole owner of the account.
Make On-time Payments
As noted above, your payment history counts as 35% of your score. Missing a payment can hurt your credit score and stay on your credit report for up to seven years. You can establish autopay to ensure you never miss a payment. However, you’ll still want to check your account monthly to ensure you weren’t overcharged.
Keep Your Credit Balances Low
Once you get a credit card, resist the temptation to run up the balance. The amount of credit you’re using plays a role in your score. It’s best to keep your balances low and use under 30% of your total credit card limit.
How to Monitor Your Credit Score
An important component of building credit is monitoring your progress. Monitoring your credit can motivate you to keep building your score. It can also help you spot problems quickly, such as missed payments. Finally, keeping tabs on your credit will let you see how specific actions impact your score so you can better understand how credit scoring works.
The Takeaway
The credit history you start with at 18 is a blank slate. Your credit score doesn’t exist until you start building credit. To begin your credit-building journey, consider opening a secured credit card or ask a family member to add you as an authorized user on their account.
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FAQ
Is a credit score of 720 good?
Yes, a 720 credit score is considered good. However, increasing your score by 20 points will make it a very good score and help you receive more favorable interest rates and terms.
Does credit build before 18?
It’s possible to build credit before age 18 if you’re an authorized user on an adult’s account or you have a secured credit card. Many financial products, such as loans and credit cards, require you to be 18 or older to apply. Being an authorized user can be your first opportunity to establish credit history.
How can I quickly build my credit score?
Since your credit utilization ratio significantly impacts your credit score, paying off your credit card balances and increasing your limits can help you build your credit score promptly.
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If you’re doing business internationally, you may have come across a requirement for a commercial letter of credit. This financial document serves as a guarantee of payment for goods or services, thereby playing an important role in facilitating international trade and industry growth.
These letters can help businesses work successfully with new clients and can build trust. Learn more about how they work and their pros and cons here.
What Is a Commercial Letter of Credit?
A commercial letter of credit, also known as a documentary credit, is an aspect of business banking. It’s a document issued by a bank to guarantee payment for goods or services for a seller (also called the supplier or exporter). It is issued on behalf of the company acquiring the supplies (the importer). It ensures that suppliers are paid for the services and/or goods they provide and that buyers receive the goods or services promised. This can be an important tool when doing business internationally or working with a new supplier. Simply put, it supports the deal and inspires trust.
Most of us know that good credit is important, and with a bank’s assistance, a commercial letter of credit can vouch for a new and/or foreign business partner. Let’s say an American company has never done business with Thailand before but wants to. Or it’s found some goods it would like to buy from a company in France, but that business only started a few months ago. There can be an element of risk to this kind of deal. The commercial letter of credit can reduce that worry since a bank steps in as a third party.
Commercial letters of credit are considered to be a very secure form of payment and are able to power many international trade transactions. The parties involved typically have every reason to believe the deal is solid, thanks to the bank’s participation.
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How Does a Commercial Letter of Credit Work?
A commercial letter of credit is more than a piece of paper promising payment. It acts a bit like an escrow agent between buyer and seller.
To explain it in more detail, a business (the buyer) can obtain a commercial letter of credit by applying for one at a bank or commercial lending institution. The seller may require this when the relationship is new (or perhaps the buyer is new and their credit history is not yet solid) or when exporting to another country.
After approval, the bank issues a letter of credit for the supplier (also called the beneficiary). This letter signals to the seller that the funds are guaranteed and will be paid by the bank, making it safe for the seller to produce goods or provide services for the buyer.
Once the seller shows evidence of having provided services or shipped the goods to the buyer (such as a bill of lading), the seller can draw on the letter of credit using their own bank. After payment has been made to the seller, the buyer must reimburse the bank before receiving the documents necessary to take delivery of the goods from the supplier.
By using a bank in this way, both the buyer and seller can feel confident in the business transaction.
Protections Offered by a Commercial Letter of Credit
A commercial letter of credit offers protections for both the buyer and seller. This is one of the reasons why it’s such an important tool.
• For the seller (or supplier), the letter guarantees payment for goods or services.
• For the buyer, the letter requires sellers to provide these goods or services before payment is issued.
These are particularly important in international trade where market conditions vary around the world and trust comes at a premium. For instance, a location might have intense climate conditions that threaten production or perhaps there’s political instability at a given moment. With a commercial letter of credit, participants in a deal can feel more secure about the deal going smoothly and successfully.
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What Parties Are Involved in a Commercial Letter of Credit?
There are always four parties involved with executing a commercial letter of credit. These are:
• Buyer: The party who applies for a letter of credit from their bank.
• Supplier: The seller of goods or services the buyer desires.
• Issuing bank: The bank of the buyer who has approved a letter of credit.
• Supplier’s bank: The financial institution from which the supplier can draw on the letter of credit. The supplier will then receive payment via the issuing bank.
Here’s an imaginary example of how a commercial letter of credit might be used during an international business deal: The Winter Company makes blankets in the U.S. and needs to order raw material from China. They want to order from a new supplier, Fine Fibers, and that new supplier wants to be sure this is a legitimate, reliable deal before beginning work. Therefore, Fine Fibers asks for a commercial letter of credit in order to start manufacturing the material for the blankets.
The Winter Company (the buyer/importer) applies for a commercial letter of credit from their bank and is approved. The letter is sent to the seller/supplier/exporter, Fine Fibers. It then begins manufacturing the material needed by the blanket-making company.
After finishing the order, Fine Fibers ships the order and provides the bank with the bill of lading. The fiber company can collect payment from the bank using their own bank.
The Winter Company, the buyer, can pay their bank back, and the bank will release information to receive the shipment. The buyer now has possession of the goods shipped. The deal is done without any hitches.
Difference Between a Commercial Letter of Credit & a Standby Letter of Credit?
There are many different types of letters of credit. One of the other commonly used letters of credit is a standby letter of credit. There are a few differences between a commercial letter of credit and a standby letter of credit, which are explored here.
Commercial Letter of Credit
Standby Letter of Credit
Bank pays the beneficiary
Bank pays the beneficiary only if the buyer cannot
Acts as payment
Acts more like a default or back-up payment method
Buyer must apply and be approved for a commercial letter of credit
Buyer goes through underwriting to examine their creditworthiness
For both domestic and international transactions, commercial letters of credit can fulfill payment according to the contract’s specifications and help identify the goods’ delivery so a final payment can be made.
For example, Wells Fargo offers these letters to business clients. The letters of credit have a renewable term and typically take two weeks to process once the Letter of Credit application has been completed. Many other banks (Citibank, for instance) also offer these letters of credit too, facilitating business deals.
Pros of a Commercial Letter of Credit
There are benefits for both the seller and the buyer for using a commercial letter of credit.
For the seller/exporter
• Ensures supplier is paid when requirements are met, building trust
• Payment can be remitted to a bank of their choice
• Can access financing in many countries by having a letter of credit
• Helps develop new trade relationships, especially internationally
For the buyer/importer
• Reduces the amount of money tied up in a lengthy transaction
• Allows the buyer to stipulate terms and conditions for fulfillment of the contract before payment is made by the issuing bank
• Ensures goods or services are provided to the buyer, building trust
• Helps develop new trade relationships, especially internationally
A commercial letter of credit can help you businesses conduct transactions by guaranteeing payment from the issuing bank once requirements are met. This way, you can work with new businesses to dependably complete deals domestically and internationally. Commercial letters of credit can be a valuable asset in building trade and trust.
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FAQ
Who is the beneficiary in a commercial letter of credit?
A commercial letter of credit facilitates trade by guaranteeing funds (payment) for a supplier. The beneficiary is the receiver of the funds, whether the seller or the bank named by the recipient.
What is a letter of credit in commercial banking?
A letter of credit in commercial banking is a document from a bank guaranteeing payment to a supplier once a deal’s conditions are met. Typically, it is used in international trade and/or between companies that have not done business previously.
Why do you need a letter of credit?
You may need a commercial letter of credit if your company is working with a new supplier that doesn’t offer trade credit, your supplier is outside the country or your normal trading area, or your company doesn’t have enough credit history for a supplier to trust your ability to pay.
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At some point, there may come a time when you need to ask the question: Does filing for unemployment benefits affect your credit score? The answer is no, fortunately.
Losing your job can be like a kick in the stomach. It can deflate you and leave you scrambling to figure out what to do next. That last thing that many people need, in addition to firing up a job search, is a hit to their credit score, too. If you do lose your job, many financial professionals will tell you that the first thing you should do, if you qualify, is to file for unemployment so that you still have some income as you revise your resume and start interviewing.
The good news, again, is that you don’t need to worry about a potential ding to your credit. More information below!
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Why Your Credit Score Matters
Your credit score is, in a sense, your financial reputation. It can give lenders or creditors a quick and easy summary of your creditworthiness — or, how likely it is you are to pay back a loan on time and in full. Everyone has a credit report, and you can think of your credit score as a truncated version, or sort of like a CliffsNotes, to your credit score.
Your credit score matters because it’s used by lenders to gauge how risky you are as a borrower. It’s used to measure not only whether a lender would be willing to give you a loan, but how much they’d charge you for the privilege — or what the effective interest rate would be for borrowing.
When it comes to some of life’s bigger purchases, such as a car or a home, that can be very important. A couple of percentage points can mean that a borrower ends up paying tens or even hundreds of thousands of dollars more in interest over the years. As such, when a lender sizes up your credit application and takes a look at your credit score, the higher, the better.
As for what factors affect your credit score? It’s a mixture of things: Your payment history, total debt balances, credit utilization, credit history (how long you’ve had accounts), credit mix, and inquiries from lenders.
Again, you may be concerned that if you lose your job, filing for unemployment may affect your credit score. And, again, there’s no cause for concern. Not only will filing for unemployment not affect your credit score, it also won’t appear on your credit report. Your credit report contains information relating to your past borrowing activity, not your employment status.
So, unless there’s been a change in your credit history — say, you apply for a new line of credit or close an old credit card — your credit report won’t change. That said, your credit report may contain information relating to past employers, but the only thing that should have an effect on your credit score will be items relating to financial accounts.
That may become an issue if, say, you were issued a company credit card at a previous job. But for most people, your employment status, or past employers, aren’t likely to have an impact on your credit report or credit score.
Remember: Your credit score is a snapshot of your financial reputation, not your employment status!
How Unemployment Can Affect Credit Scores Indirectly
With all of that in mind, your employment status — or filing for unemployment — may have an effect on your credit score in an indirect way.
As mentioned, your employment status isn’t a part of your credit score’s calculation, and neither is whether or not you received unemployment assistance. It’s really all about paying back or down your debts, on time, and on schedule. As such, if you do lose your job and file for unemployment, you may find yourself in an income crunch. Your unemployment check is most likely going to be smaller than the paycheck you’re accustomed to receiving, and that may make it difficult to keep up with your payments.
You may also be tempted to start using your lines of credit more while unemployed as a way of making ends meet. For example, you might start using your credit card at the grocery store as a way of keeping money in your bank account, with the thought that you’ll pay off your balance once you get another job and a regular paycheck again. Some individuals may also look into personal loans for unemployed persons, too.
That logic may not be faulty, but doing so, you will increase your credit utilization and overall debt, which can lower your credit score.
Finally, if you find that you can’t keep up with your minimum payments due to the resulting cash crunch of losing your job, that, too, will ding your credit score. That’s why it’s important to maintain a line of communication with lenders. If you can’t make your payment, let them know, and they may be willing to work with you. Tools like a money tracker app may be helpful as well.
And, remember, if you do have a company credit card or some other type of financial account with an employer, and you lose your job, that credit line could be severed. That, too, could affect your credit score, as it ultimately lowers your total available credit.
As for protecting your credit score while unemployed, the most important things you can do are to try and keep your debt balances low and to keep an open line of communication with your creditors. Of course, a loss in income will probably spur you to change your spending habits by cutting back in certain areas. But in terms of maintaining your credit score, the best course of action is to keep doing what you’re doing: making your payments.
That means continuing to make your payments (at least the minimum) as scheduled. And, since it bears repeating, if you’re going to struggle to make those minimum payments, call your lender and let them know. Some will be willing to make accommodations (forbearance, extensions, etc), perhaps by deferring payments, although there’s no guarantee.
If you feel that you need more help, you can also work with a credit counselor to help you evaluate your options, and even negotiate with your lenders. You may also want to set up free credit monitoring, too, so that you can see any changes to your score.
The Takeaway
If you lose your job and file for unemployment, there shouldn’t be a direct effect on your credit score. That said, there may be indirect factors that could lower your score. The most important thing you can do to maintain a strong credit score is to keep making your payments and try to keep your debt balances (or credit utilization) to a reasonable level.
And remember that if you’re really struggling, it may be worth it to reach out to a professional for personalized advice.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
See exactly how your money comes and goes at a glance.
FAQ
Can I apply for a credit card when I’m unemployed?
It’s possible to get a credit card while unemployed, but keep in mind that a creditor’s main concern is whether or not you can make your payments. As such, your approval for a credit card may hinge on your income and other debts or financial obligations.
What if my credit score goes down?
Credit scores go up and down all the time, but if you do experience a fall in your credit score while unemployed, you’ll likely know why — and it’s probably because you missed payments or saw your credit utilization go up. The good news is that you can always work on increasing it again.
What personal information does your credit report include?
The short answer? A lot of it. That includes your name, aliases, birth date, Social Security number, address (and former addresses), phone number, and possibly your employment history, among other things.
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SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
By Austin Kilham |
Credit, relay |
Comments Off on Why Did My Credit Score Drop After a Dispute?
Under federal law, you are allowed to dispute information that shows up on your credit report both with the company that reported the information and with the reporting bureau that recorded it. There’s no fee for filing a dispute, and the credit reporting bureaus may make changes based on the information that you provide.
This can be great news if your credit report changes in your favor and your credit score gets a boost. However, it is possible that when information on your reports gets changed, your credit score actually takes a hit.
Here’s a closer look at why your credit score may have dropped after a dispute, plus other common reasons your score might drop.
Can a Dispute Hurt Your Credit Score?
When you dispute your credit report, it’s important to understand that the dispute itself does not cause your credit score to drop. In other words, you aren’t punished for questioning the information on your credit report. That said, the information in the dispute could have a negative impact on your score. For example, if the information in your dispute demonstrates that you have a lower credit limit than previously reported, your credit score could take a hit.
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Common Reasons for Credit Scores to Drop
As you manage your credit score and work to build credit, there are a number of reasons your credit score may drop. Here’s what to look out for.
Your payment history — whether you have a track record of paying off your debts on time — is a big part of how your credit score is calculated. In fact, it makes up 35% of your FICO score, which is calculated by the Fair Isaacs Corporation. Your score will likely fall if you make late payments or if you miss payments entirely.
Derogatory Remark on Your Credit Report
A derogatory mark on your credit report is a negative item that indicates you didn’t pay back a debt according to agreed upon terms with your lender. These marks tend to remain on your report for seven to 10 years. Examples include bankruptcies, missed payments, debts in collection, foreclosures, and repossessions.
Change in Credit Utilization Rate
Your credit utilization rate indicates how much of your available credit you are currently using. You can find it by dividing your available credit by your current debt. The higher your utilization rate, the more debt you are carrying in comparison to the amount of credit you have, which may suggest that you’re overextended. Banks might get worried about your ability to pay off your loans. That’s why the amount you owe makes up 30% of your FICO score, and why a higher utilization rate can hurt your score.
Reduced Credit Limit
Your credit limit has an impact on your credit utilization rate. If your limit is reduced, your utilization rate could increase, hurting your credit score. You can lower your utilization rate by paying off some of your debts.
You can also ask one of your credit card companies to raise your credit limit. They’re usually happy to do it as long as your account is in good standing.
Closed Credit Card
The length of your credit history comprises 15% of your FICO score. When you cancel credit cards — when consolidating credit card debt, for example — you may be reducing your credit history. You could also be reducing your credit mix, which makes up 10% of your FICO score.
Similarly, paying off a loan might have a slight negative effect on your credit score because it can reduce your credit history and credit mix. That said, it could also have a positive effect on your record if it reduced your credit utilization rate.
Multiple Lines of Credit Opened or Applied for
New credit accounts make up 10% of your FICO score. Banks worry that when a person opens several lines of credit in a short period of time, they are at greater risk of defaulting on their loans. As a result, new lines of credit can ding your credit score.
Not only that, but simply applying for new credit can hurt your score. When you apply for a credit card or loan, your lender will make what is known as a “hard inquiry” to view your credit report. Lenders may see those seeking new credit as more risky, so hard inquiries can also have a negative effect.
Mistakes on your credit report can lead to a lower score. That’s why it’s important that you monitor your credit report regularly and report errors to the credit reporting bureaus as soon as possible. You can request a free credit report from each of the credit reporting bureaus — TransUnion, Equifax, and Experian — once a year.
Identity Theft
Monitoring your credit report is also a good way to catch fraudulent behavior. If you’ve been subject to identity theft, bad actors may have used your personal information to open fraudulent accounts, which could have a negative effect on your credit score. Report these accounts immediately.
Types of Credit Report Errors to Look Out for
When reviewing your credit report, look out for the following errors:
• Personal information errors. Check your name, phone number, address, etc.
• Accounts that belong to another person with the same name.
• Fraudulent accounts that you didn’t open.
• Account status errors. Check for closed accounts that are reported as still open, accounts incorrectly reported as late or delinquent, incorrect payment information, and the same debt listed more than once.
• Balance and credit limit information that is inaccurate or out of date.
Correcting Errors on Your Credit Report
If you spot a mistake on your credit report, you can file a dispute with the credit reporting bureau. The mistake may be on your credit report with each bureau, so you may need to file a separate dispute with each.
You’ll need to file your dispute in writing and use the credit reporting bureau’s dispute form if they have one. Include documents that support your dispute, and be sure to keep a record of what you send.
Disputing information on your credit report can be an important part of ensuring that your credit score is as accurate as possible. You won’t be penalized for filing a dispute, though in certain circumstances, it is possible that your credit score will drop if information in your dispute has a negative impact on your credit.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
See exactly how your money comes and goes at a glance.
FAQ
Why did my credit score go down for no reason?
Your credit score likely didn’t go down for no reason at all. It’s possible that a creditor reported new information to the credit reporting bureaus that had a negative impact on your credit report. Or there could be a mistake on your credit report. Regularly monitoring your credit report can help you catch errors.
Why did my credit score drop after filing a dispute?
Your credit score may have dropped after you filed a dispute if information in that dispute had a negative impact on your score. You are not penalized for filing the dispute itself.
Does losing a dispute hurt your credit?
Losing a dispute does not necessarily hurt your credit, but it may leave it unchanged if the information you were hoping would boost your score is rejected.
Photo credit: iStock/pepifoto
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
