Your credit score is one of the most important factors of your financial life. Banks use it to decide whether to give you a credit card or loan. Some service providers use it to determine whether you should pay a security deposit. Car insurance providers consider your credit score when setting your insurance rate. While it's important to know what things help you build a good credit score, you also have to know those things that could hurt your credit score and lead to side effects from bad credit. If you avoid doing the following fifteenthings, it will help ensure a goodcredit score.
Paying Late
Thirty-five percent of your credit score is your payment history. Consistently being late on your credit card payments will hurt your credit score. You shouldalwayspay your credit card bills on time to preserve your credit score.
Not Paying at All
Completely ignoring your credit cards bills is much worse than paying late. Each month you miss a credit card payment, you end up one month closer to having the account charged off.
Having an Account Charged Off
When creditors think you're not going to pay your credit card bills at all, they charge off your account. A charge-off means the insurer has given up on you.Often synonymous with the term "written off," this does not mean you're no longer responsible for the debt. This account status is one of the worst things for your credit score.
Having an Account Sent to Collections
Creditors often use third-party debt collectors to try to collect payment from you. Creditors might send your account to collections before or after charging it off. A collection status shows that the creditor gave up trying to get payment from you (because it was fruitless) and was forced to hire someone else to collect the funds from you.
Defaulting on a Loan
Loan defaults are similar to credit card charge-offs. A default shows that you have not fulfilled your end of the loan contract. Meaning, you've chosen notto pay back the money.
Filing Bankruptcy
Bankruptcy is an extreme measure and will devastate your credit score. It also stays on your record for seven years. It's a good idea to seek alternatives, like consumer credit counseling, before filing bankruptcy.
Having Your Home Foreclosed
Getting behind on your mortgage payments will lead your lender to foreclose on your home. In turn, the late payments will hurt your credit score and make it harder to get approved for future mortgage loans.
Getting a Judgment
A judgment shows that you not only avoided paying your bills, the court had to get involved and force you to pay the debt. While they both hurt your credit score, a paid judgment is still better than an unpaid judgment.
High Credit Card Balances
The second most important part of your credit score is the level of debt, measured by credit utilization. Having high credit card balances (relative to your credit limit) increases your credit utilization and decreases your credit score. In other words, if your limit is $10,000 and your balance is $9,500, you will not have a good score.
Maxed out Credit Cards
Maxed out and over-the-limit credit card balances make your credit utilization 100 percent. This is the most damaging thing you can do for your credit score.
Closing a Credit Card That Still Has a Balance
When you close a credit card that still has a balance, your credit limit drops to $0 while your balance remains the same. This makes it look like you've maxed out your credit card, causing your score to drop. Always pay off your balance before shutting down a credit card.
Closing Old Credit Cards
Another component of your credit score, 15 percent, is the length of your credit history—longer credit histories are better. Closing old credit cards, especially your oldest card, makes your credit history seem shorter than it actually is. Even if you don't use the card anymore, if there's no annual fee, you should keep the card open because you have nothing to lose.
Closing Cards With Available Credit
If you have several credit cards, some with balances and some without, closing those credit cards without balances increase your credit utilization.
Applying for Several Credit Cards or Loans
Credit inquiries account for 10 percent of your credit score. Making several credit or loan applications within a short period of time will cause your credit score to drop. Always keep applications to a minimum.
Having Only Credit Cards or Only Loans
A mix of credit is 10 percent of your credit. When you have only one type of credit account, either loans or credit cards, your credit score could be affected. Usually, this comes into play when you have very littleadditional credit information in your credit history.
FAQs
5 Things That May Hurt Your Credit Scores
- Making a late payment.
- Having a high debt to credit utilization ratio.
- Applying for a lot of credit at once.
- Closing a credit card account.
- Stopping your credit-related activities for an extended period.
1. Payment History: 35% Making debt payments on time every month benefits your credit scores more than any other single factor—and just one payment made 30 days late can do significant harm to your scores. An account sent to collections, a foreclosure or a bankruptcy can have even deeper, longer-lasting consequences.
What messes up your credit score? ›
You Pay Your Bills Late
Your payment history has a major impact on your credit score. U.S. News & World Report estimated that a single late payment can lower a credit score by 100 points or more.
What are 10 things you could do to hurt or even destroy your credit? ›
10 Things That Can Hurt Your Credit Score
- Getting a new cell phone. ...
- Not paying your parking tickets. ...
- Using a business credit card. ...
- Asking for a credit limit increase. ...
- Closing an unused credit card. ...
- Not using your credit cards. ...
- Using a debit card to rent a car. ...
- Opening an account at a new financial institution.
Paying late
Something that is really easy to do, but can really hurt your credit rating is to make late payments. It might seem harmless to pay off your card a couple of days late, but it can make a big impact.
What is the biggest killer of credit scores? ›
What Counts Toward Your Score
- Payment History: 35% Your payment history carries the most weight in factors that affect your credit score, because it reveals whether you have a history of repaying funds that are loaned to you. ...
- Amounts Owed: 30% ...
- Length of Credit History: 15% ...
- New Credit: 10% ...
- Types of Credit in Use: 10%
Making a Late Payment
Every late payment shows up on your credit score and having a history of late payments combined with closed accounts will negatively impact your credit for quite some time. All you have to do to break this habit is make your payments on time.
Is a 500 credit score fair? ›
A 500 credit score is in the bad credit score range. Your credit score determines whether you qualify for financial products, like credit cards and car loans, and what interest rate you might pay. In April 2023, about 3% of Americans had a score lower than 500, according to credit scoring company FICO.
What is the number one credit killing mistake? ›
Mistake 1: Late payments.
What are the 3 C's of credit? ›
The factors that determine your credit score are called The Three C's of Credit – Character, Capital and Capacity.
Each lender has its own method for analyzing a borrower's creditworthiness. Most lenders use the five Cs—character, capacity, capital, collateral, and conditions—when analyzing individual or business credit applications.
What is a very good FICO score? ›
Why is my credit score going down when I pay on time? ›
Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.
What bills count towards credit score? ›
Some other monthly bills that, if paid on time and reported to the credit bureaus, could help you build credit include: Credit card payments, including secured credit cards and student credit cards. Installment loans like student loans and auto loans. Mortgages.
What brings credit score down the most? ›
If you are more than 30 days past due on a payment, credit issuers will report the delinquency to at least one of the three major credit bureaus, likely resulting in a drop in your score. Payments that become 60 or 90 days past due will have an even greater effect on your score.
What is one of the biggest mistakes you can make that will hurt your credit score? ›
Making late payments
The late payment remains even if you pay the past-due balance. Your payment history may be a primary factor in determining your credit scores, depending on the credit scoring model (the way scores are calculated) used. Late payments can negatively impact credit scores.
What are 5 ways to improve your credit score? ›
Here are five credit-boosting tips.
- Pay your bills on time. Why it matters. Your payment history makes up the largest part—35 percent—of your credit score. ...
- Keep your balances low. Why it matters. ...
- Don't close old accounts. Why it matters. ...
- Have a mix of loans. Why it matters. ...
- Think before taking on new credit. Why it matters.
Your race, color, religion, national origin, sex and marital status. US law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.
