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Consumers lowering their credit scores without going into debt?

Jun 10, 2013 Sean Albert

Many individuals think that there are only a few ways to lower their credit scores. Defaulting on student loans, forgetting to pay off credit card accounts and skipping the mortgage for this month are probably just a handful in what is sure to be dozens of ways to adversely affect a score. There are many myths out there, but lenders know all the tips and tricks and are on the lookout for changing scores.

This is because, as scores shift, so does the likelihood they're going to be extending a loan to a given individual. Especially in the wake of the economic recession that hit its peak in 2008, many financial institutions are playing it safe and only loaning to those who are most likely to pay back the funds soon.

However, because there are small errors that can easily chip away at a person's ranking, is there anyone with a perfect consumer credit score anymore? The volume of subprime borrowers has been increasing in the past few years, and these individuals have found relief from alternative finance businesses. Other than making obviously bad financial decisions, how else did people cause these decreases?

Easily made errors can yield bad results
Some commonly made flubs might result in a lower credit score. For instance, according to the Rapid City Journal, closing out credit card accounts and making inquiries on consumer credit reports can each result in FICO lowering a person's credit score. The source said that even if people have paid off a credit card account, they probably shouldn't close it, because it will show that the consumer has a balance of zero, while closing them out could be a red flag.

What about those who have already made mistakes?
For individuals who have made these flubs, they still have a place to turn while getting their score back on track, which can take years. Alternative lenders have the opportunity to make their own rules. While they can't just give loans to anyone, they are able to create their own perimeters, and they tend to give money to those who might not be readily accepted by banks.

For example, even if an individual has a relatively poor traditional score, they might still have a high Payment Reporting Builds Credit figure. This number is compiled when lenders consider a bevy of other pieces of data - like a positive history of payments made on utilities accounts - and can yield a fuller picture of the individuals riskiness.