There are many myths about what can hurt your credit score, so let’s get back to basics: What behaviors can have the most significant effect on that all-important number? Some, like filing for bankruptcy, are obvious. Others may not be — for example, a seemingly responsible move like turning down a credit increase can hurt your score and leave you scrambling to find ways to fix it. This is a review of the 16 things to avoid if you want to keep your credit impeccable.
Not checking your credit report for errors
Now is the time if you haven’t checked your credit report in a while. You never know if and when inaccurate information may appear, which could become a hindrance to your score. “My credit report said I worked at a pizza place and had a lien in Lewiston, New York. Neither was correct,” says Janice S. Lintz, author, and consumer education expert. “Everyone should pull out all three of their credit reports and review them thoroughly.”
Don’t even make a payment.
Missing a payment is one of the fastest ways to lower your credit score. And that’s the case even if late payments don’t become a pattern, says Beverly Harzog, a consumer finance analyst and credit card expert for US News and World Report. “Some consumers don’t think missing a credit card payment is a big deal,” she warns. “A payment that’s just 30 days late can lower your score by a substantial amount. And once the late payment makes it onto your credit report, it stays there for seven years.” According to FICO, that substantial amount can add up to 110 points for someone with an excellent score.
Maximize your credit cards
If you have the credit, you can use it too. Only up to a point, experts say. The amount you owe also called “credit utilization,” makes up a large part of your credit score, and as FICO points out, maxed-out cards tell your creditors that you may have trouble making payments in the future. That, of course, can become a drag on your score. Credit experts recommend using no more than 30% of your available credit if you want to keep your credit score healthy, as this can signal to lenders that you may be in a cash squeeze.
Using too much credit in general
Even if you haven’t used the card’s total limit, your credit utilization may still be too high. That can happen if you use too much of your credit on all your accounts, lowering your credit score. According to CreditCards.com, this total number matters more than individual card usage regarding your credit score. The magic number this time? Also, about 30%, experts say. Try to stay there — or below — on all of your accounts to prevent your score from being affected.
Cancel an unused account
Why the heck would you get rid of a credit account, you don’t need to hurt your credit score? Again, the answer is the use of credit. If you suddenly have less credit available, your credit utilization will increase, assuming you have balances in other accounts. “The FICO Score rewards you for using only a small amount of the credit you have at your fingertips,” Harzog warns. “You are not rewarded for reducing your access to credit.”
Close an old account
If a credit account you want to close is one you’ve had for many years, your credit score could take a double whammy. You’ll have less access to credit — which isn’t good — but you’re also hurting your credit history. And the longer that history is, the better for your score, says DontPayFull ‘s Richard Best. “Closing an old credit card could have the effect of shortening your credit history, which is a big factor in your credit score. If you have to cancel a credit card, cancel a newer account.”
Decline credit increases
Accept the credit increase — or even apply for one. The secret? It would help if you didn’t use it. Again, it is about the use of credit. Just as closing accounts means you have less access to credit, getting a credit increase means you have more access. Lou Haverty, a Financial Analyst Insider CFAShe, was surprised to see her score go up when she got a much higher credit limit on a new card, but she didn’t use much. “My utilization rate went up significantly because I had total credit, but I wasn’t using that credit,” she explains. “I imagine there are a lot of people like me who are a little too conservative and, as a result, have a lower credit rating than they deserve.” Moral of the story: Don’t be shy about accepting higher limits, as long as you can resist the urge to use them.
Always have a balance
Yes, you should use your credit to boost your credit score, but that doesn’t mean you should carry a balance on your credit cards. Nothing could be further from the truth. “Having a balance means two things. First, you pay interest on your balance, and if it gets high enough, you could end up in debt. And second, as your compensation goes up, your credit utilization ratio goes up. This situation can make cause your credit score to go down. A better plan:
- Use your card.
- Wait for the balance to appear on your statement.
- Pay in full whenever possible.
Delay in other invoices
There’s more to your credit score than credit card payments, mortgages, and car loans. “There are a lot of other things that could hurt your credit score,” says Aris Jerahian of the Orange County Credit Union in California. “If you don’t pay your rent, your utility bill, your phone bill, or even your medical bill, you could end up with a collection agency.” That, in turn, could weigh heavily on your credit score. Interestingly, at that point, the damage is already done and paying off the collection account probably won’t benefit your credit score.