What Will Hurt Your Credit Score?
When you are working hard to build your credit score, it’s important to do things that will help your score go up. But it’s equally important to understand what will hurt your score. When you understand what can hurt your credit score, you can change your behavior and take steps to avoid certain actions so that your score continues to grow. Here are four things that can hurt your credit score. Keep these in mind as you manage your money.
1. Paying Late or Missing Payments
Your payment history makes up 35% of your FICO credit score. Making your payments late or missing payments altogether will hurt your credit score. This factor is the largest single portion of your credit score, so each payment you make or miss can have a big impact. Missing your payments also signals to lenders that you are a risky borrower and might have more debt than you can manage.
To avoid missing and late payments that drag down your score, be sure to only put charges on your credit card that you can pay off. Also, do not borrow money unless you can make the payments. If something happens and you are unable to make a payment on time, reach out to your lender or creditor. They may be able to adjust your due date so you can pay on time and maintain your credit score.
2. Using Too Much of Your Credit
Your credit usage accounts for 30% of your FICO score and using too much of your available credit can hurt your score. Creditors look at your credit utilization ratio, or how much of your credit that you are using compared to how much credit you have, to determine if you are a risky borrower. Ideally, creditors want to see you use less than 30% of your available credit.
To keep your credit usage from negatively impacting your credit score, aim to use less than 30% of your available credit. So, if you have two credit cards, each with a $500 limit, you have a total available credit of $1,000. Do your best to keep your total usage below $300 to keep your credit usage from hurting your credit score.
3. Opening Too Many New Accounts
Another thing that can lower your credit score is opening too many new accounts in a short period of time. New accounts make up 10% of your FICO credit score. Opening too many accounts at once causes lenders to worry that you may be taking on too much debt and causes your score to drop.
Instead of opening several accounts all at once, just open new accounts when you actually need them. And be sure that you have a plan in place to make your payments. This will help keep your credit score higher.
4. Closing Credit Cards
While it may seem counterintuitive, closing credit card accounts can actually hurt your credit score. Fifteen percent of your FICO credit score comes from your length of credit history. If you close your older credit cards because you aren’t using them anymore, this actually shortens the length of your credit history, and hurts your score. Closing a credit card also decreases your available credit, which can in turn increase the percentage of your total credit you use. Remember, you want to keep your credit usage under 30%, so closing a card can hurt your credit score in this area as well.
Instead of closing a credit card, just don’t use it. You can put it in a drawer or another safe place and hold on to it. This will keep your credit history length intact and also will not increase your credit utilization ratio. This will help keep your credit score up.
Managing Your Credit Score
It’s important to understand what can hurt your credit score and how you can protect yourself. By paying your bills on time, managing how much credit you use and how many accounts you open, and by keeping your cards open even if you don’t use them, you will be well on your way to building good credit. Credit is a great tool to have on your personal finance journey. And using your credit responsibly can help you as you work towards your financial goals.
This series on building credit is brought to you in partnership with United for Financial Health powered by Experian. Log in to your SaverLife account to earn points for reading about credit and taking quizzes to test your knowledge.
Kimbree Redburn is an Accredited Financial Counselor® with a background in economic development. She works with her clients to help them understand their financial options and make money decisions with confidence. She believes that financial education gives people a chance to build a better life.