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Having good credit may give you more opportunities, but it doesn’t make you invincible. There are all kinds of unexpected ways that your good credit score can go down in a heartbeat.
Maintaining a healthy credit score is crucial for securing favorable loan terms, lower insurance rates, and even landing your dream job. However, several seemingly innocuous actions can wreak havoc on your credit score, potentially hindering your financial goals. Let’s delve into 11 common mistakes that can negatively impact your credit score and discover how to avoid them.
1 Making Late Payments: The Cardinal Sin
This one’s a no-brainer. Consistently paying your bills on time is the single most important factor influencing your credit score. Even a single late payment can significantly lower your score especially if it’s 30 days or more past due. Remember, late payments stay on your credit report for up to seven years casting a long shadow on your financial reputation.
2. Maxing Out Your Credit Cards: A Recipe for Disaster
While it’s tempting to utilize your credit card’s full potential, maxing it out sends a red flag to lenders. Aim to keep your credit utilization ratio, the percentage of your available credit you’re using, below 30%. Ideally, strive for a utilization ratio of 10% or less for optimal credit health.
3. Applying for Too Many Credit Cards: A Credit Score Killer
Every time you apply for a new credit card, a hard inquiry is placed on your credit report. Multiple hard inquiries within a short period can temporarily lower your score. Limit your credit card applications to avoid unnecessary inquiries.
4. Closing Old Credit Accounts: A Double-Edged Sword
While it might seem logical to close unused credit cards, doing so can actually harm your credit score. Closing accounts reduces your available credit, increasing your credit utilization ratio. Additionally, it shortens your credit history, another crucial factor in determining your score. Consider keeping older accounts open, even if you don’t use them frequently.
5. Having Your Credit Limit Lowered: A Credit Score Shrinker
Having your credit limit lowered can negatively impact your credit utilization ratio, even if you don’t change your spending habits. If possible, avoid requesting credit limit reductions, as they can inadvertently lower your credit score.
6. Defaulting on a Loan: A Credit Score Catastrophe
Defaulting on a loan is the worst-case scenario for your credit score. It indicates an inability to repay debt responsibly and can severely damage your creditworthiness. If you’re struggling to make loan payments, reach out to your lender as soon as possible to explore options for repayment assistance.
7. Cosigning on a Loan That Becomes Delinquent: A Credit Score Minefield
Cosigning a loan for someone else comes with significant risk. If the primary borrower defaults, you’re legally obligated to repay the debt. This can negatively impact your credit score, even if you’ve never missed a payment yourself. Before cosigning, carefully consider the potential consequences and only do so for individuals you trust implicitly.
8. Accounts in Collections: A Credit Score Nightmare
Having accounts sent to collections is a major red flag for lenders. It indicates severe delinquency and can significantly lower your credit score. If you have accounts in collections, prioritize paying them off as soon as possible to minimize the damage to your credit score.
9. Ignoring Your Credit Report: A Credit Score Blind Spot
It’s essential to regularly review your credit report for errors or inaccuracies. These errors can negatively impact your credit score and should be disputed immediately. You can access your free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year at AnnualCreditReport.com.
10. Not Using Credit: A Credit Score Mystery
While using credit responsibly is crucial, not using credit at all can also hurt your score. Lenders need evidence of your ability to manage credit responsibly. Having at least one active credit account with a good payment history can help establish a positive credit history.
11. Becoming a Victim of Identity Theft: A Credit Score Nightmare
Identity theft can wreak havoc on your credit score, as thieves may open accounts in your name or rack up debt using your stolen information. If you suspect you’ve been a victim of identity theft, take immediate action to report it to the authorities and credit bureaus.
By understanding these common pitfalls and taking proactive steps to avoid them, you can safeguard your credit score and pave the way for a brighter financial future. Remember, a healthy credit score is an essential tool for unlocking various financial opportunities and achieving your long-term goals.
Just one late payment
Even though you may have chosen the best credit card for good credit, your credit score could be negatively impacted if you ever miss a payment by more than 30 days. At that point, credit card companies are likely to report your delay to credit reporting agencies, which could lower your score.
Not having enough credit diversity
Your credit score isn’t just made up of your history with one credit card. Having a mix of credit types — revolving and installment — can help your score.
4 Habits That Will RUIN Your Credit Score
FAQ
What hurts credit score the most?
What makes credit score worse?
Can a late payment hurt your credit score?
Here are 10 things you may not have known could hurt your credit score: 1. Just one late payment You may have found the best credit card for good credit, but if you make even one payment more than 30 days late, your credit score may suffer.
Do credit inquiries hurt your credit score?
Soft inquiries, like those that come from checking your own scores and some loan or credit card prequalifications, don’t hurt your scores. Hard inquiries, when a creditor checks your credit before making a lending decision, can hurt your scores even if you don’t get approved for the credit card or loan.
How can I avoid hurting my credit score?
The best way to avoid hurting your score is knowing how your score is calculated and doing the right things to protect those aspects. Pay your bills on time, watch your credit card usage and only apply for credit when you need to. Doing these things will keep you on the right track to the credit score you want.
What factors affect your credit score?
Another factor that impacts your credit is the average length of your credit history, which plays a 15% role in your score. This is an important point to know and understand since it may seem like a good idea to close old accounts you don’t use regularly.