Posted on Monday, 10th January 2011 by Rebecca Ortiz
At some point, a responsible consumer may find themselves managing multiple lines of credit. These can range from utilities to credit cards and from school loans to home mortgages. Many consumers, however, do not understand the roles that their lines of credit play in influencing their credit scores. Below is a list of facts that consumers should keep in mind when considering how to handle their lines of credit.
- Utilities are as important as credit cards. Bills of any kind, even utilities bills, are as important to a consumer’s credit score as any other line of credit. Many consumers make the mistake of thinking that certain lines of credit, such as credit cards and home loans, are the only things that can affect their credit score. The truth is, however, that utilities are, in fact, a form of credit themselves, with the utility companies “lending” the service to the consumer in lieu of a monthly payment. Of course, utilities are different from credit cards and personal loans because they do not charge interest on monthly payments, although they do often levy fees or penalties for late or missed payments. These fees will negatively affect the consumer’s account with the utility companies and, in turn, will negatively impact their credit score. Therefore, it is equally important that consumers stay on top of their utility bill payments each month, just as they do with their other lines of credit.
- Leniency with debt collections. If a consumer has a credit card, a department store line of credit, a gas bill, a rent payment, and an electric bill, they can expect that each lender will have their own terms and conditions regarding debt collection. Sometimes the consumer has no other choice than to miss a payment or make only a partial payment in a given month. If this is the case, they are advised to consider which of their lines of credit will begin debt collection immediately and which have set a timeline for default. If the consumer misses a single electric bill, for example, their service provider may instantly transfer their account to the collections department, whereas their gas company or credit card may withhold collections for 60 days or more. Knowing this can lessen the sting of defaulting on a line of credit.
- Open accounts should remain open. If a consumer has multiple standard purchase credit cards, department store credit cards and utility accounts, it will negatively impact their credit score. It is best if the consumer can avoid opening so many accounts in the first place. However, closing any one of these accounts will actually damage the consumer’s credit score more than if they had simply left it open. Creditors need to see that the consumer can handle their accounts, and by closing an account, the consumer signals to future creditors that they could not manage their money in that particular line of credit. If an account absolutely must be closed, it is advisable for the consumer to request that the creditor footnote their account with the line “closed by request of account holder.” In this way, future lenders will at least see that the account was not closed by the lender due to default.
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Tags: Credit, Credit Scores
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