Good credit dramatically improves your financial life. It can help you buy a home, get a credit card, rent an apartment, and even get a job.
It can also save you a lot of money. For example, a good credit score can improve your interest rate on a mortgage. And over a few decades, the better interest rate could make a difference of several thousands of dollars!
Needless to say, you should try to keep your credit score as high as possible. So here are 15 things that damage your credit score that you should avoid at all costs:
1. Late payments
Your payment history makes up 35% of your credit score. It’s the most heavily weighted of all credit score factors.
If you make a payment more than 30 days late, it could knock up to 100 points off your score. So always pay on time, no matter what. Consider setting up automatic payments so you don’t forget.
2. Missed payments
Even worse than late payments are missed payments. A missed payment will stay on your credit report for up to 7 years and will bring you closer to having your account charged off.
3. Having an account charged off
When a lender thinks you won’t pay your debt, they’ll often write it off as uncollectible, aka charge off your account. It’s the same as defaulting on a loan and is one of the worst things that can happen to your credit score.
4, Having an account sent to collections
Often, lenders who charge off your account will sell your debt to a collection agency who will then try to collect the debt from you. This adds an additional blow to your credit score.
5. Legal judgments
Other times, lenders will take legal action against borrowers with delinquent debt. Getting the courts involved like this will damage your credit, not to mention create extra legal fees. But know that paid judgments are better than unpaid judgments.
6. Filing for bankruptcy
Filing for bankruptcy can take anywhere from 130 to 240 points off your credit score, and it will stay on your credit report for up to 10 years.
Bankruptcy will kill your credit score but you can recover. Partner with an expert to get the best bankruptcy terms.
8, Having your home foreclosed
Bankruptcy lawyer Devin Sawdayi says, “Having your home foreclosed can take up to 160 points off your credit score, and it will stay on your credit report for up to 7 years. So try hard to prevent a foreclosure. For example, you can opt for a short sale or a deed in lieu of foreclosure. These could still hurt your credit score by up to 125 points, but the damage would be less than if you allowed the foreclosure to go through.”
9. Debt settlements
Debt settlement means settling a debt for less than what was originally owed. Whether it’s with a bank, a company, or the IRS, a debt settlement can lose you anywhere from 45 to 125 points on your credit score.
10. High credit utilization rate
Credit utilization is the percentage of your available credit that you use. It accounts for 30% of your FICO score and is the second most weighted credit factor.
Try to keep your utilization rate below 30% and definitely don’t max out any credit cards. That means if you have an available credit or $1,000, you should only carry about a $300 balance at any given time.
Having a credit utilization rate that’s any higher could lower your credit score by 10 to 45 points.
11. Hard inquiries
Hard inquiries refer to when a lender pulls your credit report for review. They usually only hurt your credit score by 5 points or less, and the impact lasts for only 1 year (though the inquiry will stay on your report for 2).
Inquiries make up 10% of your credit score. So don’t apply for too many credit cards in a short period of time. This will lead to a lot of hard inquiries and suggests to lenders that you’re desperate for credit.
12. Cosigning on a bad account
Cosigning on someone else’s credit account isn’t bad in and of itself. In fact, it could boost your credit score if the other person treats the account well. But if they don’t, your credit score will suffer. So be prudent when cosigning on credit accounts.
13. Canceling credit lines
Though it may seem counterintuitive, canceling credit lines can hurt your credit score. For one, it lowers your overall available credit and hence your credit utilization ratio.
Also, if you cancel a credit line that still has a balance, it will look like you’ve maxed out your credit card, which also hurts your credit score.
And finally, canceling your oldest credit card shortens your credit history length, which makes up 15% of your credit score. So as long as it has no annual fee, you should always keep your oldest credit card active.
14. Having too few credit types
Credit mix refers to the diversity of your credit accounts and makes up 10% of your credit score. If you only have one type of credit, your credit score will suffer. So try to have a good mix of credit types, like a mortgage, auto loan, credit card, etc.
- Errors on credit report
Lastly, errors on your credit report can also hurt your credit score. And they’re more common than you think. According to one report, over one third of Americans find at least one error on their report.
So review your credit report regularly and dispute any errors. You’re entitled to a free credit report from all 3 credit bureaus—Equifax, Experian and TransUnion—once per year. You can get it at AnnualCreditReport.com.
Wrapping it up
The key to maintaining a good credit score is to understand the factors that impact it. Now that you know some of the top things to avoid, your credit score will be better off.
But know that this was not an exhaustive list. There are many things you can do to hurt (and boost) your credit score. So monitor your credit score closely and keep learning.
I’m a single mother of 2 living in Utah writing about startups, business, marketing, entrepreneurship, and health. I also write for Inc, Score, Manta, and Newsblaze