6 Ways to Hurt your Credit Score

Your credit score is important for many instances in your life and is made up of years of credit history. You can’t make up a good credit history overnight, but you can quickly hurt your credit score if you aren’t careful.

Here are six ways you can hurt your credit score and how you can avoid it.

1. Making Payments Late

Your payment history is the largest part of your credit score. One payment over 30 days late can bring your score down 50 – 100 points. If you let your payment go even further than 30 days late, it will hurt it more.

Your payment history is 35% of your credit score, so it’s a big deal when calculating your score. In addition, the credit bureaus mark your late payments in increments of 30 days, so if you are still late at 60 or 90 days, it hurts your score even more.

To avoid late payments hurting your credit score, set up automatic payments or create a budget you can stick to and avoid making late payments.

2. Using over 30% of your Credit Limits

Your credit utilization is the next largest part of your credit score, making up 30%. Credit utilization is the amount of outstanding credit compared to your total credit limit.

Ideally, you shouldn’t have more than 30% of your credit line outstanding. For example, if you have a $2,000 credit line, keep your balance under $600. This doesn’t mean you can’t use your credit card for larger purchases, but if you do, pay the balance down to less than 30% of your total credit limit.

If you already have more than 30% of your credit line outstanding, create a plan to pay it down as quickly as possible.

3. Closing Credit Card Accounts

It might feel like the responsible thing to do to close old credit card accounts, but it can hurt your credit score by affecting many categories.

Here’s how closing old credit card accounts can hurt your score:

• It increases your credit utilization rate – Closing a credit card account decreases your available credit, which increases your credit utilization rate. The lower your credit lines, the less credit you can have outstanding.

• It hurts your credit mix – If you only have a couple of credit cards and a lot of installment debt (personal or car loans), your credit mix could be affected. Credit mix is 10% of your credit score, but every point counts.

• It shortens your credit length – Your credit ‘age,’ or the average age of all accounts, makes up 15% of your credit score. So if you close an older account, it decreases your average credit age and hurts your credit score.

To avoid this, don’t close old credit card accounts. Instead, keep them open and in a safe place. You aren’t required to use your credit cards every single month, but keeping them open can definitely help your credit.

4. Applying for too Many New Loans or Credit at One Time

Each time you apply for new credit, it hurts your credit score. This is because lenders do a hard credit pull, meaning they check your credit to see if you qualify. Each inquiry costs your credit score a few points, and the inquiry shows up on your credit report.

If you apply for a lot of new credit at once, for example, applying for a handful of credit cards within a month or two, it can be a red flag to lenders. The activity will lower your credit score and signify to lenders that you’re in financial trouble.

However, there’s one exception. You can shop around for the same type of loan, getting quotes from several lenders, and only get hit for one inquiry. This is only the case if you rate shop within a few weeks and it’s for the same type of loan.

It’s always best to only apply for new credit when needed. Don’t apply for every ‘pre-approved’ credit card that comes your way or click on every advertisement for personal loans.

5. Not Using your Credit

So far, we’ve talked about ways to avoid using your credit or habits to avoid, but not using your credit can also be bad for your credit score. When you don’t use your credit, there’s no credit activity for lenders to report, so your credit score doesn’t have a chance to improve.

Worse yet, some lenders will close your account after a certain amount of inactivity. As we discussed earlier, a closed account can hurt your credit score in many ways. 

To prevent this, know your creditor’s terms, and use the credit as needed to keep it active and to avoid it negatively affecting your credit score.

6. Not Checking your Credit Report

One major way to hurt your credit score is to not check your credit report. Everyone gets free access to their credit reports every year through annualcreditreport.com, so take advantage of it. You can also get credit reports and scores monthly through myScoreIQ. 

When you check your credit report, you can find issues you caused (and can fix), and even mistakes, and must be disputed. Each credit bureau has a dispute process that allows you to  write a letter to have inaccurate, incomplete, outdated, and unverifiable information removed from your credit report. 

Credit bureaus have 30 days to respond to your request. After that, if they can’t verify the information, they must either remove or update your credit report accordingly. This can help improve your credit score especially if the item was negative and bringing down your score.

Final Thoughts

It’s easier than you think to not only hurt your credit score, but to fix it. Credit scores change monthly, so there’s always time to make things right and improve your score. While credit scores take a while to bounce back fully, consistent effort to keep them up will have the best results.

If you have any of these bad credit habits, create a plan to turn things around, and in a few months to a year, you’ll see a new and improved credit score.