5 Common Credit Score Mistakes to Avoid
Avoid these five common credit score mistakes to maintain a healthy score and unlock better financial opportunities.
Want to keep your credit score high? Avoid these 5 common mistakes:
- Late Payments: A single late payment can stay on your credit report for 7 years and impact 35% of your FICO score.
- High Credit Utilization: Using more than 30% of your credit limit can lower your score, with under 10% being ideal.
- Closing Old Accounts: Closing accounts reduces your credit history length and increases your credit utilization ratio.
- Too Many Credit Applications: Multiple hard inquiries in a short time can signal financial distress and hurt your score.
- Ignoring Credit Reports: Errors or fraud on your report can go unnoticed, damaging your credit if not corrected.
Quick Tips: Pay bills on time, keep credit usage low, review credit reports regularly, and avoid unnecessary credit applications. Managing these habits can protect your score and improve financial opportunities.
Credit Score Mistakes to Avoid At All Costs
1. Late Payments
Late payments make up 35% of your FICO score and can seriously hurt your credit. Even one late payment - reported after 30 days - can stay on your credit report for seven years, dragging down your score, especially if your credit was strong to begin with [1] [3].
For example, a 90-day late payment causes more harm than a 30-day one, as it signals a higher level of risk to lenders [2]. Staying on top of payments is key to keeping your credit score healthy and accessing better financial options.
Here are a few ways to stay on track:
- Set up autopay with a checking account that always has enough funds.
- Use reminders a week before due dates to stay ahead.
- Match payment dates with your paycheck schedule for better timing.
If money is tight, reach out to your lenders before missing a payment. Many offer hardship programs or can adjust due dates to align with your income schedule, which can help protect your credit score [1].
2. High Credit Use
Your credit utilization ratio - how much of your available credit you're using - accounts for 30% of your FICO score, making it the second most critical factor after payment history [3]. High usage can signal to lenders that you might be facing financial difficulties.
For example, if you're using 90% of your credit limit, it can cause a sharp drop in your score. Someone with a 750 credit score might see it fall to 650 or even lower due to high utilization [3].
While the general advice is to keep your utilization under 30%, aiming for less than 10% can have an even greater positive impact on your score [2]. Modern scoring models also look at trends over time, so keeping your usage consistently low is increasingly important.
Here are a few ways to keep your credit utilization in check:
- Pay down balances frequently: Making multiple payments each month helps keep your usage low.
- Ask for a credit limit increase: This lowers your ratio if your spending remains the same.
- Set up alerts: Notifications can help you avoid letting your balance exceed 30% of your limit.
"Credit can be a financial tool; it's debt that can be a financial problem." - Kiplinger Advisor Collective [1]
Because credit card issuers report to credit bureaus monthly, your utilization ratio updates regularly. Staying on top of it is crucial. Next, we’ll look at how closing old accounts can unexpectedly hurt your credit.
sbb-itb-b2789ac
3. Closing Old Accounts
Closing unused credit cards might seem like a smart move, but it can actually hurt your credit score. Why? It shortens your credit history and increases your credit utilization ratio. Since credit history length makes up 15% of your FICO score, it plays a big role in your overall credit profile [3].
When you close a card with a high credit limit, your total available credit decreases. This can cause your utilization ratio to go up, which negatively impacts your score. Both credit history and utilization are key factors in determining your credit score.
Here’s how to handle old accounts without hurting your score:
- Keep no-fee cards active by using them for small, recurring charges.
- Downgrade fee-based cards to no-fee versions instead of closing them.
- Make occasional purchases to avoid automatic account closures.
"While your scores may decrease initially after closing a credit card, they typically rebound in a few months if you continue to make your payments on time." - Rod Griffin, Senior Director of Consumer Education and Advocacy at Experian [4]
If you need to close an account, think carefully. Prioritize keeping your oldest cards open, as they help maintain your credit history. Closing newer accounts instead can minimize the impact on your score while keeping your utilization ratio in check.
Managing old accounts wisely is crucial, but opening too many new ones can also hurt your credit. Let’s dive into why that happens.
4. Too Many Credit Applications
Applying for several credit accounts in a short time can hurt your credit score. Each application results in a hard inquiry on your credit report, and too many of these can make lenders think you might be facing financial trouble.
If you're chasing multiple sign-up bonuses, your score can drop with every new application. Over time, this can add up and reduce your chances of getting approved for credit down the road.
When you're shopping for certain types of loans, credit scoring models provide some leniency:
- Mortgage loans: Applications made within 45 days are treated as a single inquiry.
- Auto loans: Applications within 14 days count as one inquiry.
- Student loans: Applications within 30 days are viewed as one inquiry.
To manage your credit wisely and protect your score:
- Space out applications by at least 3-6 months and use pre-qualification tools to avoid unnecessary hard inquiries.
- Check qualification requirements beforehand to avoid applying for credit you're unlikely to receive.
"Multiple credit applications in a short time frame can signal financial distress to lenders, potentially making it harder to get approved for credit when you really need it", says Rod Griffin from Experian [4].
Hard inquiries impact your FICO score for 12 months, though they remain on your report for 24 months [4]. Along with managing applications, regularly reviewing your credit report is key to keeping your score healthy.
5. Ignoring Credit Reports
Skipping regular checks on your credit reports can lead to financial headaches that are completely avoidable. Thanks to AnnualCreditReport.com, you can access free weekly credit reports from all three major agencies, making it simple to stay on top of your credit [1].
When you ignore your credit reports, you risk missing critical issues like errors, identity theft, or outdated information. These problems can result in loan denials or higher interest rates, costing you more in the long run [1][4].
Some common mistakes found in credit reports include:
- Incorrect personal details
- Accounts that don’t belong to you
- Fraudulent accounts
These inaccuracies can hurt your credit score if left unresolved. Regularly reviewing your reports ensures you catch and fix these problems quickly.
Here’s how to safeguard your credit:
- Check your reports often using AnnualCreditReport.com.
- Use tools like CreditCaptain to get real-time alerts about suspicious activity.
- If you find errors, contact both the credit reporting agency and the creditor. Make sure to provide supporting documents [1][4].
"Checking your own credit report does not negatively impact your credit score", says the Kiplinger Advisor Collective [1].
When disputing errors, be thorough with your paperwork. While the process can take time, addressing issues early prevents long-term credit damage.
Conclusion
Your credit score plays a big role in shaping your financial opportunities, from getting approved for loans to determining your interest rates. By steering clear of these common credit mistakes, you can safeguard your score and save money over time.
Good credit management comes down to consistent and responsible habits. Paying bills on time is critical - just one late payment can stay on your report for seven years [1]. Keeping older accounts open is also important, as credit history length makes up 15% of your score [4]. And when applying for new credit, be cautious; too many hard inquiries can raise red flags about your financial stability.
Here’s a quick guide for maintaining strong credit:
| Action | Frequency | Tool/Resource |
|---|---|---|
| Review Credit Report | Weekly | AnnualCreditReport.com |
| Manage Payments | Monthly | Auto-pay system |
| Monitor Credit Activity | Monthly | CreditCaptain dashboard |
If you want extra help improving your credit, tools like CreditCaptain can be a game-changer. Their AI-powered platform offers credit monitoring and tailored strategies to help you spot potential problems early and take actionable steps to improve your score.
