What Can Hurt Your Credit Score?

Your credit score has a big impact on which loans you can qualify for, what your down payment requirements are and how much interest you pay. That’s why it’s important to know what can hurt your credit score. If you can avoid the common causes of score decreases, you may be able to borrow more money for less.

This guide can help with that. It covers everything you need to know to avoid hurting your credit score. Keep reading to learn more.

What hurts your credit score?

The three major credit bureaus (Experian, Equifax and TransUnion) calculate credit scores based on a variety of factors. Each of these inputs is covered below.

1. Late payments

When you don’t make credit, loan and bill payments on time, it signifies to future lenders that they may also have difficulty receiving payments from you in a timely manner. That’s why failing to make payments on time can damage your credit score significantly.

Though not all companies report payments to the credit bureaus, those that do generally allow you to be up to 30 days late with a payment before it impacts your credit score (although you may incur a late fee or interest rate increase with your current lender).

You should always try to bring the account current, even if your credit score has already decreased. That’s because credit bureaus tend to reduce your score further if you’re over 60 days late.

When you are more than 90 days late, a lender may demand you get your payments up to date or face consequences like repossession or foreclosure. Once you’re over 120 days late with a payment, the lender may officially turn your loan over to a collection agency.

2. A high credit utilization ratio

Lenders also tend to view people who use a high percentage of the credit they have available as credit risks. This is because if you’re already borrowing as much as you possibly can, it can be construed as a sign that you may not be managing your money properly (even if you are). Lenders could also worry that you won’t have enough available credit to pay off their bills if need be.

As a general rule of thumb, it’s best to limit your credit utilization to no more than 30% of your total available credit. For example, if you have a credit limit of $1,000 across cards, try to only use a maximum of $300 of it at a time. Some experts recommend using even less credit than that. If you want a truly excellent credit score, keeping your utilization ratio under 10% may be what it takes.

The good news about having a high credit utilization ratio is that it may be easier to fix than other issues that can lead to a low credit score, depending on your financial situation. Simply paying your balances off to reduce your credit utilization is enough to fix the problem, as these rates aren’t tracked historically like late payments and credit inquiries are.

3. Numerous credit inquiries

One of the paradoxes of the U.S. credit system is that applying for new lines of credit can damage your score. It won’t always. But if you apply for multiple loans or credit cards in a short span of time, your score could drop by about five points for each inquiry. That’s why it’s important to think carefully before submitting an official credit application.

The good news is that your credit score will bounce back from hard inquiries with time. These generally disappear from your credit report after two years.

Of course, you’re going to have to submit credit inquiries eventually when you need a new line of credit. But you can often monitor your credit or get quotes online that won’t impact your score before officially applying.

4. Closed credit accounts

One of the most common credit score myths is that closing a line of credit that you’re no longer using is a smart idea. The opposite is typically true. Even if you are no longer using a credit card or line of revolving credit, you may want to consider keeping the account open.

The reason for this is that the average age of your credit accounts can impact your score. So if you close a credit card that’s one of your oldest credit accounts, it can decrease your average credit account age and, therefore, ding your score.

That said, there are still times when closing a card could make sense, like if you’re not using it frequently and it has a high annual fee or interest rate. If you want to learn more about the impact that closing your credit accounts can have on your score, take a look at this guide covering how closing a credit card can hurt your credit score.

5. Cosigned applications

Cosigning for a child, family member or close friend who needs a loan can be a kind-hearted thing to do. However, it could have an impact on your credit score, which is why you should think carefully before proceeding.

When you cosign for a loan or credit card, you’re committing to making payments if the borrower is unable to do so. If you neglect to follow through on that commitment, then you might hurt your credit score.

If the borrower misses payments, that can also affect your score. For example, say that you cosign a student loan for your child. If they fail to make timely payments on that loan, the missed payments will show up on your credit report and bring your score down.

If the borrower doesn’t miss any payments, your credit score is unlikely to be impacted. However, the loan amount will show up as funds that you’ve borrowed. This could impact your credit utilization ratio and debt-to-income ratio, which may impact your ability to borrow funds in the future.

6. Errors on your credit report

Sometimes, your credit score may decline through no fault of your own. When this happens, it may be the result of one or more errors on your credit report.

Lenders and credit card companies may sometimes accidentally report erroneous information to the major credit bureaus. When this happens, your accounts may show that you’re missing payments you weren’t required to make or have a loan in collections that you’ve actually already paid off.

Credit reporting errors can also be some of the first signs of identity theft. If you see a new account on your credit report that you didn’t open, you should likely deal with it quickly to assess whether you’re the victim of fraud or the company in question made a reporting error.

If you need to do this, you can learn how by reviewing this guide covering how to dispute your credit report. You may also want to place a fraud alert on your credit report or research how to remove negative items from your credit report.

The good news is that errors on your credit report shouldn’t impact your score in a permanent way as long as you spot the problems and take action to resolve them. But if you don’t pay attention to your credit report and allow issues like these to linger, it could lead to a low credit score.

7. Collection accounts

When you miss a credit card or loan payment for 90 days or longer, the account can be put into collections. When this happens, it can show up as delinquent on your credit report and reduce your score.

If this happens to you, there are steps you can take to repair your bad credit. For example, you might be able to reach an agreement to pay the balance in full with the collection company in exchange for removing the delinquent account from your credit report.

But even if you can’t pay the full balance now, you may want to see if the collection company in charge of the debt would be willing to settle for a reduced amount. It may not remove the account from your credit report entirely if you don’t pay the full balance, but the company could note that you’ve settled the delinquency for a reduced amount. Settling a debt for less than the full balance can negatively affect your credit score, but that option is still better than not paying the debt at all.

If you have multiple collection accounts or other delinquencies and you aren’t sure how to proceed, you may want to research the best credit repair companies. Repairing your credit is absolutely something you can do on your own, but they can help you prioritize your debt reduction spending and communicate with lenders and reporting bureaus on your behalf.

However, be extremely careful: Many credit repair companies are sketchy — or outright scams. Make sure you know what a firm can (and can’t) do before you pay it.

8. Repossession

If you have a car, home or other major asset that you fail to make timely payments on, the lender may be able to repossess it, meaning it would take back physical possession of that asset. When this happens, it can reduce your credit score by 100 points or more.

Repossession may also involve several other events that hurt your credit score. For example, repossession typically occurs only after you’ve already exhibited a history of missed payments and the account has gone to collections.

It can be difficult to get a repossession off of your credit report after the fact. But if you negotiate with your lender before it gets to the point of needing to repossess your asset, you may be able to settle your past-due balance while avoiding some of the damage to your score.

9. Bankruptcy

There are a variety of strategies you can use when repairing damaged credit scores. Bankruptcy is an option of last resort for most borrowers because it can seriously damage your credit rating.

Bankruptcy is the official legal process of liquidating your assets and agreeing to payment terms with lenders. It wipes the slate clean and gives you a fresh start, but it can hurt your score significantly and for a long period of time (up to seven years for Chapter 13 and up to 10 years for Chapter 7).

The good news is that you can establish a solid credit score after your bankruptcy. It may just take several years of on-time payments and good credit history in order to do so. But this is probably only something you should consider after consulting with a financial professional who can comprehensively evaluate your situation and offer solid advice.

Summary of Money's guide to what can hurt your credit score

Having a strong credit score can help you qualify for better loan terms and larger credit lines. Understanding the factors that can hurt your credit score will help you avoid unexpected score decreases and continue qualifying for the loan terms and amounts that you want.

Each of the factors covered in this article can play a role in harming your credit score. But you can also use them as ways to improve your credit score by understanding where the point deductions are coming from on your credit report and responding to them.

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