8 Ways You’re Hurting Your Credit Score Without Knowing It
1. Late Payments: Even a single late payment can severely impact your credit score, as payment history makes up 35% of your overall score. Always aim to make timely payments to avoid hurting your credit.
2. High Credit Utilization Ratio: A high credit utilization ratio occurs when you use most or all of your available credit, which can negatively affect your credit score. Keep your utilization below 30% to ensure positive outcomes for your score.
3. Applying for New Credit Frequently: Each time you apply for new credit, a hard inquiry is added to your credit report and can temporarily lower your score. Avoid opening several accounts in a short period to maintain a healthy score.
4. Closing Old Accounts: Closing old credit accounts, particularly ones with no balance, can negatively affect your credit utilization ratio and the overall age of your accounts – both factors that contribute to your credit score. Aim to retain older accounts unless there is a strategic reason to close them.
5. Ignoring Errors on Your Credit Report: Errors on your credit report can have a significant impact on your score. Checking your report regularly and disputing errors will help protect you from any lasting damage.
6. Co-signing Loans: Co-signing a loan for another individual involves considerable risk. If the person defaults or pays late, it will directly affect your credit score as well since you are equally responsible for the loan.
7. Defaulting on Loans or Credit Cards: Defaulting on loans, credit cards, or other forms of debt can severely damage your credit score. Avoid excessive borrowing and always strive to pay off outstanding balances in a timely manner.
8. Not Diversifying Your Types of Credit: Having a mix of installment loans (e.g., auto loans or mortgages) and revolving credits (e.g., credit cards) in your financial portfolio provides balance and shows potential lenders you can effectively manage various types of credit.
By being aware of these common mistakes and proactively managing your finances, you can prevent damages to your credit score and maintain a healthy financial standing.