What Hurts Your Credit Score? Here Are 11 Things to Watch For
Securing a good credit score isn’t just about doing certain things right. You also need to know what not to do.
June 15, 2022
Whether your credit score is lower than you’d like or you just want to do everything in your power to keep it high, knowledge is key. So it’s important to know what hurts your credit score. Even if you feel pretty knowledgeable about how credit scoring works, there may be a few crucial factors you haven’t considered.
We’ve pulled together 11 things that hurt your credit score to help you avoid the most costly mistakes.
Credit scores: A quick primer
Before we dive too deep into what hurts your credit score, it’s important to clarify a few things about how credit scoring works.
First, you don’t have one single credit score. There are two principal credit scoring agencies (FICO® Score and VantageScore), and they both use a variety of credit scoring models. For instance, there are 16 different versions of the FICO Score.
Although there are many similarities, different models may consider slightly different factors or weigh these factors differently.
Plus, not all lenders report to all credit bureaus (i.e., Experian™, Equifax™ and TransUnion™), which can result in you having varying scores.
In this article, we’ll be focusing on FICO, and helpfully, FICO provides an exact breakdown of how it weighs different factors when calculating credit scores:
15%: Length of credit history
10%: New credit
What hurts your credit score?
Now that you’ve seen the five underlying factors that affect your credit score, let’s put them into context by looking at what things can hurt your score.
1. Missed or late payments
Payment history accounts for 35% of your credit score, making it the single most important factor. This is why missed payments and late payments can have such an impact on your score.
As long as you pay your bills on time each month, you’ll build up a strong payment history over time and boost your chances of a high credit score. But if you pay late or not at all, your score could take a hit. And if you go long enough without paying, the consequences can be even worse — as you’ll soon see.
2. Accounts sent to collections
If you fail to make your payments for long enough, your credit card issuer may decide to send your account to collections. This means an outside debt collector will become responsible for collecting the money you owe. It’s a stressful experience, and it can hurt your credit score, too.
When it comes to credit cards, there’s another possibility if you keep missing your payments: A charge-off. This effectively means a creditor thinks you won’t pay what you owe on the account, so they write it off as a loss and close it.
Charge-offs typically happen after about six months of non-payment. Charge-offs can negatively impact your payment history credit scoring factor. And unfortunately, you’ll still have to pay the debt.
4. High credit utilization
Amounts owed is another vital aspect of your credit score, so it’s good to keep an eye on your credit utilization ratio — the share of available credit you’re using each month.
Your credit utilization rate should be below 30%, and the lower, the better. To achieve this, try to minimize the balances on your credit lines and consider asking for a higher credit limit.
The higher your utilization rate, the more likely your credit score is to take a hit.
5. Exceeding credit limits
We’ve established that you should keep your credit utilization below 30%, but what happens if you go all the way up to 100% or even higher?
It’s possible to exceed your credit limit if you opt in to over-limit protection. Over-limit protection means you won’t have a purchase declined if you’re over your limit. However, exceeding your credit limit may make it easier for you to accumulate credit card debt and may hurt your credit score. Plus, it can result in extra penalties, depending on your credit card’s terms.
6. Closed credit accounts
The length of your credit history is responsible for 15% of your credit score, and a longer average age across all your accounts is preferable. This means that closing a credit card account could cause a drop in your score — especially if it’s a card you’ve had for a long time.
For this reason, if you have an old card you’re not using anymore, and you don’t have to pay an annual fee, there’s no real downside to keeping the card open.
Closing a credit card can also hurt your utilization ratio since your total credit limit will be lower. And if you close a credit card that still has a balance, the balance will remain, but your credit limit will go to zero, making it look like you’ve maxed out the card. So, if you do have to close an account, make sure to pay off your credit card balance first.
7. Lack of diversification
Having different types of credit — a mix of installment loans and revolving credit — positively impacts your credit score. For instance, you could have a credit card and a car loan.
However, since this is a less influential factor, it’s not recommended to open new accounts or loans you don’t really need just to increase your mix of credit.
8. Credit inquiries
Whenever you apply for a new line of credit or a loan (known as a credit inquiry or hard inquiry), lenders will see it on your credit file. In fact, these credit inquiries can stay on your credit report for up to two years. As a result, your credit score may take a hit.
The good news is, if you receive multiple inquiries in a short period of time due to rate shopping for a mortgage or auto loan, it will usually only count as one inquiry.
Keep in mind, the impact on your score from inquiries may be greater if you have a shorter credit history since there will be less data to help bolster your score.
9. Home foreclosures
A foreclosure means you’ve defaulted on your mortgage, and the lender is recovering the loan value by taking back the property. It can have a significant negative impact on your credit score and can remain on your report for up to seven years.
Filing for bankruptcy might sound like it will get rid of your problems, but it should be viewed as a last resort. Beyond the complicated and painful proceedings, bankruptcy can have a negative effect on your credit score, and it can remain on your file for seven to 10 years (depending on the type of bankruptcy).
11. Mistakes of others
If you’re a co-signer on someone else’s loan or have an authorized user on your credit card, their mistakes could impact your own score negatively. If you co-sign a loan for somebody who misses their payments, it will affect you negatively. Similarly, when authorized users make any of the mistakes mentioned above, your score will take a hit.
It’s also possible for there to be errors on your report. Fortunately, you can report them and have them removed if you can prove they’re mistakes or due to identity theft.
Work toward the credit score you want
Memorizing every little thing that can impact your score might seem overwhelming, but remember, a good score ultimately comes down to five core factors:
A strong payment history
A low credit utilization rate
A long credit history
A good credit mix
Limited new credit inquiries
Meeting these benchmarks is a good first step on your personal finance journey.
If you’re struggling to keep up with your credit card payments or manage your debt, consider enlisting an app to help. The Tally†credit card repayment app automates your payments so you have one less thing to worry about, and it can also combine your higher-interest credit card debt into one lower-interest line of credit.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.