How to Avoid Hurting Your Credit Score

Are you hurting your credit score?  Many consumers are not aware that they are inflicting damage to their credit scores with how they handle credit.  There are a lot of seemingly innocent credit habits that maybe causing you to have a lower score than you deserve.

Do not max out your credit card.  Did you know that maxing out your credit limit can deduct anywhere from 10 points to 45 points from your credit score, depending on your current rating?  Credit utilization makes up 30% of the FICO score so this is not a surprising fact.

If you would like to maintain a score of at leastCredit score 720 and above, you should be very careful with how you use your credit limit.  Experts recommend keeping credit usage minimal, as much as possible below 40% of your available limit.

Don’t be late.  This may be an obvious tip but many people are still guilty of late payment.  Each time you are late you will lose points.  I had a client who habitually paid here bills 90 days late.  As she put it, when they came in a pink or red envelope.  Of course her score was very low. For some reason she felt she would only be penalized once, and if she paid before the card got shut off or the collection agencies called, it didn’t effect her score as much.  Whether you are 30, 60,or 90 days late, your score drops each month you are late!

The highest percentage in the FICO scoring system is payment history at 35%.  Just imagine how much you will be hurting your credit score if you fail to pay a bill on time.       This is true not just for credit card and loan payments but for all types of debts (electricity, cable, internet, etc).

Cancelling a credit card.  You might be thinking about cancelling one of your credit cards because it has a high rate or because you already have new credit cards.  Before you pick up that phone and request to cancel, you should be aware that your credit score can suffer.

If it’s an old credit card you’ve been using for years, closing it now would mean erasing the old parts of your credit history.  The length of credit history takes up 10% of your FICO score so over time as that old card “falls off ” your credit report.  You may see a lower score just because it looks like you have new credit and nothing established.  Instead of cancelling, consider keeping the card, using it only for a small purchase.  Be sure to pay it off in full right away so you won’t need to pay the interest rate.

Not having a variation of credit accounts.  If you only have credit cards in your name, it would maybe hard to increase your score.  Types of credit used makes up 15% of your overall credit score so it is recommended to acquire different types of accounts in your name.  Of course, timely payment for each account is crucial to maintain excellent credit.

Seeking debt settlement as a solution.  Resolving a debt problem through settlement can be an option but you should be aware that such a move will damage your personal credit score.  Thus, before taking this step , weigh the matter carefully and see if the advantages of debt settlement far outweigh the damage it can do to your credit score.  Interview the company and make sure they have a good track record.  I’ve seen some clients come in with lower scores after going thru debt consolidation or settlement companies.  Why?  Some of those companies had set dates that they would pay out the bills.  If your creditors didn’t agree to that date, then they were paid late. Make sure that the company you choose doesn’t operate like that!  You are defeating one of the purposes of settling your debt if you pay late because of them and incur late fees.

4 comments

  • Sasha Jones says:

    I’m glad I follow the rules to not ruin my credit score. I’ve been close to be honest and I have ended up lowering my credit score a bit in the past, but I thankfully didn’t lose too much. I think it’s common sense these days, or they’re making it more common sense. The more people know the better.

  • Allison May says:

    Hi Sasha, good credit is common sense, but mistakes happen. Or unexpected bills. I think if more people got into the habit of saving money every paycheck they would not have to worry about the unexpected. I was guilty of a late payment once or twice a year (thankfully Amex waived the fee) but I set all my credit cards on automatic payment of the minimum. That way I know at least that is paid on time, and when I have the money I pay more on them. My goal is to make sure I pay off my credit cards by the end of the month. But sometimes i need 2 or 3 months to get it down to a $0 balance.

  • Damon says:

    I cancelled a credit card in the past when I had two others. I felt I didn’t need it. I wish I saw this before I did because it did lower my credit score sometime ago. But yeah, everything is a lot better with my credit score now.

  • Allison May says:

    Hi Damon, yeah its surprising what will lower your score. But as long as you are consistent with payments the drop is usually short lived. The killers are late payments, charge offs, bankruptcies, liens and things like that. They lower your score so much it can take years to get back up to having “decent” credit.

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