There are so many myths surrounding what can make or break your credit score. If you are looking to rebuild your credit score, you need to know what matters – and what does not. Read on to find answers to questions like ‘can an overdraft affect your credit score?’ and ‘what really counts when building your credit score?’.
Can an overdraft affect your credit score?
An overdraft by itself cannot affect your credit score. But if you do not comply with the bank requirements for repayment, you may damage your credit score.
If you use your overdraft, you need to pay it back within the specified time limit. This is usually 30 days, but you should check with your bank to be certain.
You also need to be careful not to exceed your overdraft limit. If you do, your bank can record this on your credit history and this can be damaging to your credit score.
What Matters When You Are Improving Your Credit Score
Your credit score is determined based on these factors:
You need to make sure that your financial habits are healthy across every area that affects your credit score. To do so, it is useful to know what affects your credit score and what does not.
Here are some things that do not directly affect your credit score:
- your income;
- your insurance payments;
- getting married;
- library fines and traffic fines (thanks to a change in policy!);
- child support;
- rent payments;
- checking your own credit score;
- your age;
- your interest rates; and
- credit counselling.
3 Surprising Things That Might Affect Your Credit Score
If you consider the example above about your overdraft, your failure to repay what you owe on time impacts your payments history.
Cancelling Your Credit Card
Cancelling new credit cards will not damage to your credit score but cancelling your old credit cards can. Firstly cancelling your old credit cards will affect the length of your credit history. Secondly, it can affect your credit utilization ratio. If you have credit available on an older credit card, but you do not use it, it lowers your utilization ratio. If you can safely keep your older credit cards, it might be worthwhile keeping them.
Not Paying For Your Storage Unit
Any contract that you enter into and then default on can hurt your credit. Some consumers assume that, because the storage unit can auction your stuff if you default on your payments, it will not affect their credit. The reality is that the storage company will likely record the default on your payment history. This will affect your credit.
Using a Debit Card to Rent a Car
Some car rental agencies will perform a hard credit check if you want to pay for your rental using a debit card. This can impact your credit score for up to one year after the hard check is performed – and might stay on your credit history for up to two years.
The impact of one hard credit check for a car rental is not huge – around 10 points. If you rent often, this can quickly add up. In any event, it is best to give the car rental agency a credit card.
Rebuild Your Credit Score With 4 Pillars
4 Pillars provides credit rebuilding services to:
- Anyone who is looking to take back control of their credit.
- Individuals who feel their credit score is holding them back.
- People and families who want a brighter financial future.
- Canadians who have experienced financial hardship.
- Canadian families who went through insolvency, debt settlement, or credit counselling.
If you want more information about rebuilding your credit, you can read our blog post on that topic.