If you need to buy a car, house, take out a loan, or open a credit card, your credit score can either really help or really hurt you. Your credit score may determine if you’re eligible to buy something, and the interest rate that you’re offered.
No matter what kind of income and credit history you have, we’ve got some tips to help you understand why your credit score if what it is. Whether you’re maintaining perfect credit, or pushing your score higher, here are 11 things that can hurt your credit score you need to watch out for.
1. No Credit Variety
A narrow profile will keep your good credit score from achieving greatness. What do we mean by this? Lenders look for diversification in any potential borrower’s credit report. They’d like to see a well balanced mixture of installment loans such as a car loan, mortgage loans, and revolving credit lines.
For many people, diversification isn’t difficult. Most consumers finance automobiles, carry mortgages, and maintain a modest number of credit cards. For others, credit variety may be a little more daunting. Young adults living at home, for example, may have to work a little harder to diversify.
2. Little Available Credit
Sure, credit lines are there to be used. But the best way to use them is by paying them off monthly. Creditors look for a low debt-to-credit ratio as an indicator of credit health. Whether you have two credit cards or seven, if they’re all carrying high balances, your credit score at risk of decreasing.
3. Closing Accounts
Who knew closing that old account you never use could hurt you! Even if that credit card is collecting dust in your wallet, don’t close it. Closing accounts you don’t use can shorten your credit history, especially if the account you’re closing has been with you for a long time.
Creditors look at a long credit history as a plus. The shorter your credit history, the more challenging building your credit portfolio may be.
4. No Account Activity
If you’re not using those credit cards in your wallet, watch out. Some companies may close your account for lack of activity, since you’re not generating any profit for them.
One way to use your credit diligently is to pay any balance off before the end of each billing cycle. This process keeps your cards active; and it’s a safer way to make purchases than using a bank card, especially online.
5. Late Payments
Even one late payment can hurt you. Anytime your payment is beyond 30 days late, credit bureaus are sure to be notified. The result of your tardiness will be a ding to a dent on your credit report depending on how many payments are late and the length of each one.
6. Unnoticed Credit Report Mistakes
A great number of consumers never check in on their credit — don’t be one of them. A simple review of your report may uncover errors hurting your credit.
Be sure to check your report with all three credit bureaus: TransUnion, Equifax, and Experian. These bureaus don’t typically communicate with each other. So, you’ll have to contact each one to correct any mistakes.
7. Co-Signing Loans
If you co-sign a loan, make sure the person you’re helping is responsible. Or you may have to stay on their case to get payments in on time. Irresponsibility on their part will be sure to hurt your credit in the long run.
8. Too Many Hard Inquiries
You’ve seen it plenty of times — that 0% introductory APR and other great terms available if you apply right now. Sounds like a good deal, and it may be. Just remember if you allow lenders to run a credit check, they may conduct a hard inquiry.
A hard inquiry occurs when lenders pull your credit score from one of the three credit bureaus. Many lenders have their own algorithms to look at your credit that never affects your report.
But if you are working with a lender that performs hard inquiries, too many of those can give you a lower credit score. Before you apply for any credit, make sure you understand whether the inquiry about to be made is a hard or soft inquiry.
9. Loading One Card With Charges
Is there that one card in your wallet with all the great perks you’ve made your go-to card for purchases? That’s fine if you’re diligently paying down your balance each month.
But if you’re racking up the purchases to the point of maxing out, and your other cards go unused, your debt-to-credit ratio still won’t look great to lenders. Instead, spread your spending out, and pay off your debt each month.
10. Lack Of Attention
Why monitor your credit if you’re responsible with your money and credit lines?
If you’re not paying attention to your credit score, you’ll never know if it’s suffering from problems that are so easy to avoid. Whether you use a monitoring service, or pull your history from time to time, the importance of giving your credit score some attention cannot be understated.
10. Unemployment
When unemployment hits, and the nest egg runs dry, credit cards often become the last safety net. Using the cards to get by translates to payments, too — payments that are easy to miss when you have no income. Missed payments as early as just 30 days late will start dragging your score down.
If you find yourself in a line of work that isn’t the most stable, consider building up a larger nest egg than typical to carry you through those dry times when work is scarce. This will put your mind at ease and your credit further from danger.
11. Multiple Users
You may feel pretty good about adding your almost grown up kid or your significant other to your card. But, if you’re not careful, those special people in your life may end up spending a little too much, ballooning your balance, and making paying down your debt almost impossible. The result will be a lot of frustration and a nice little blemish on your credit.