Having a good credit score can help you save a lot of money over your lifetime, but many people find themselves with scores lower than they’d like because they don’t know how much everyday things can hurt their scores.
Of course, once you know what those things are, you’re better equipped to improve your credit. Here are five common things that can hurt your credit:
1. High Credit Card Balances
One of the most influential factors in credit scoring is your revolving credit balances relative to your credit limit. You may be able to afford to spend much or all of your available credit and pay the bills in full, but that doesn’t mean you should.
The ratio of your credit card balance to the card’s limit is called credit utilization — it’s calculated for each revolving credit account you have, as well as your total balances relative to your total amount of available credit. (Installment loans factor into credit utilization, too, but revolving credit has a greater impact.)
On average, Americans use 24% of their available credit, which isn’t a bad place to be, but the lower you can get that credit utilization rate, the better. If you have low credit card limits and want to use your cards for a lot of purchases, consider paying your bill more frequently so the balance doesn’t creep up.
2. Late Payments
This is even more important than keeping your debt levels low. In fact, the most important thing you can do for your credit is make your credit card and loan payments on time. (Missing other bills, like for utilities, generally isn’t reported to the credit bureaus, but unpaid accounts could be sent to a debt collector, and collection accounts hurt your credit.)
A single missed payment could knock dozens of points — even 100 points — off your score, so pay close attention to due dates.
3. Applying for a Bunch of Credit Cards at Once
When you apply for a credit card or a loan, the potential creditor will want to see what your credit looks like. Credit checks for the purpose of extending credit are considered hard inquiries (a soft inquiry occurs during something like an account review, employer credit check or when you check your own credit), and hard inquiries will knock a few points off your score. If you apply for many credit cards in a short period of time, those little dings add up to a big dent in your score, but applying for loans is a bit different, since scoring models group those inquiries together so as not to penalize you for shopping around. You can read here about how applying for loans affects your credit scores here.
4. Closing Credit Cards
It may seem strange to keep open an account you don’t use, but it can make sense from a credit score perspective. Even if you don’t use a credit card anymore, keeping it open can help improve your credit utilization rate. As soon as that account is closed, you lose that available credit, so you would need to reduce the amount of spending you do on credit cards to keep your utilization from increasing.
If a credit card is one of your older credit accounts, you would want to keep it open for the sake of keeping up your average age of credit, because that’s something that takes a long time to build up. Having an average credit age lower than seven years can suppress your score.
5. Identity Theft
You may not be able to prevent it, but the longer identity theft goes unchecked, the higher the chances it will hurt your credit score. A fraudster may open up accounts in your name or run up a huge balance on a stolen credit card, and if you don’t stop it before the activity is shared with the credit bureaus, you’ll also have to deal with getting that information off your credit reports. Identity theft is extremely common, so the best thing you can do is monitor your financial accounts closely and act quickly to cut off a fraudster as soon as you notice anything suspicious.
You can see the factors affecting your credit, plus create an action plan to improve your scores by checking your credit scores for free on Credit.com, which also shows a summary of your credit history so you can tell if you’re dealing with any of the typical credit-score killers.
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Christine DiGangi covers personal finance for Credit.com. Previously, she managed communications for the Society of Professional Journalists, served as a copy editor of The New York Times News Service and worked as a reporter for the Oregonian and the News & Record. More by Christine DiGangi