15 Things That Hurt Your Credit Score
1. Paying late
Thirty-five percent of your credit score is your payment history. Consistently being late on your credit card payments will hurt your credit score. Pay your credit card bills on time to preserve your credit score.
2. Not paying at all
Completely ignoring your credit cards bills is much worse than paying late. Each month you miss a credit card payment, you're one month closer to having the account charged off.
3. Having an account charged off
When creditors think you're not going to pay your credit card bills at all, they charge off your account. This account status is one of the worst things for your credit score.
4. Having an account sent to collections
Creditors often use third-party debt collectors to try to collect payment from you. Creditors might send your account to collections before or after charging it off. A collection status shows that the creditor gave up trying to get payment from you and hired someone else to do it.
5. Defaulting on a loan
Loan defaults are similar to credit card charge-offs. A default shows that you have not fulfilled your end of the loan contract.
6. Filing bankruptcy
Bankruptcy will devastate your credit score. It's a good idea to seek alternatives, like consumer credit counseling, before filing bankruptcy.
7. Having your home foreclosed
Getting behind on your mortgage payments will lead your lender to foreclose on your home. In turn, the late payments will hurt your credit score and make it harder to get approved for future mortgage loans.
8. Getting a judgment
A judgment shows you not only avoided your bills, the court had to get involved to make you pay the debt. While they both hurt your credit score, a paid judgment is better than an unpaid one.
9. High credit card balances
The second most important part of your credit score is level of debt, measured by credit utilization. Having high credit card balances (relative to your credit limit) increases your credit utilization and decreases your credit score.
10. Maxed out credit cards
Maxed out and over-the-limit credit card balances make your credit utilization 100%. This is least ideal for your credit score.
11. Closing credit cards that still have balances
When you close a credit card that still has a balance, your credit limit drops to $0 while your balance remains. This makes it look like you've maxed out your credit card, causing your score to drop.
12. Closing old credit cards
Another component of your credit score, 15%, is the length of your credit history - longer credit histories are better. Closing old credit cards, especially your oldest card, makes your credit history seem shorter than it really is.
13. Closing cards with available credit
If you have several credit cards some with balances and some without, closing those credit cards without balances increases your credit utilization.
14. Applying for several credit cards or loans
Credit inquiries account for 10% of your credit score. Making several credit or loan applications within a short period of time will cause your credit score to drop. Keep applications to a minimum.
Credit Inquiries and Your Credit Score
15. Having only credit cards or only loans
Mix of credit is 10% of your credit. When you have only one type of credit account, either loans or credit cards, your credit score could be affected. This factor mostly comes into play when you don't have much other credit information in your credit history.
If you stop not paying your credit cards, pay all your bills on time and don't mess up again you should be able to repair the damage done to your credit by the time you're 25
7 fast fixes for your credit score
If you're dragging around a bad credit score, you'll pay more for car loans, credit cards and mortgages. Here's how to turn it around in a hurry. Plus: 4 credit mistakes to avoid.
So you've had a few problems getting the bills paid lately, and you're wondering what you can do to repair the damage.
You've got plenty of company. There are more than 30 million people in the United States with credit blemishes severe enough (and credit scores under 620) to make obtaining loans and credit cards with reasonable terms difficult.
Or maybe your credit is OK, but you'd like to make it better. After all, the better your credit, the lower the interest rates you can secure on mortgages, car loans and credit cards.
Know the score
In order to improve your credit score, it's important to know where you stand currently. Despite all the media attention given to free credit reports, you still have to pay to find out your credit score, the three-digit number ranging from 300 to 850 that is the key to your borrowing costs. You can obtain your FICO credit scores, the ones lenders use, from MyFico.com. Or you can get Experian's "consumer education" version here.
Now you're ready to take the seven steps to speedy credit repair:
1) Pay down your credit cards. Paying off your installment loans (mortgage, auto, student, etc.) can help your score, but typically not as dramatically as paying down -- or paying off -- revolving accounts like credit cards.
The credit-scoring formulas like to see a nice, big gap between the amount of credit you're using and your available credit limits. Getting your balances below 30% of the credit limit on each card can really help.
While most debt gurus recommend paying off the highest-rate card first, a better strategy here is to pay down the cards that are closest to their limits.
2) Use your cards lightly. Racking up big balances can hurt your score, regardless of whether you pay your bill in full each month.
What's typically reported to the credit bureaus, and thus calculated into your score, is the balance reported on your last statement. (That doesn't mean paying off your balances each month isn't financially smart -- it is -- just that the credit score doesn't care.)
You typically can increase your score by limiting your charges to 30% or less of a card's limit. If you're having trouble keeping track, consider using a check register to track your spending, logging into your account frequently at the issuer's Web site, or using personal finance software like Microsoft Money or Quicken, which can download your transactions and balances automatically.
3) Check your limits. Your score might be artificially depressed if your lender is showing a lower limit than you've actually got. Most credit-card issuers will quickly update this information if you ask.
If your issuer makes it a policy not to report consumers' limits, however -- as is the usual case with American Express cards and those issued by Capital One -- the bureaus typically use your highest balance as a proxy for your credit limit.
You may see the problem here: If you consistently charge the same amount each month -- say $2,000 to $2,500 -- it may look to the credit-scoring formula like you're regularly maxing out that card.
You could go on a wild spending spree to raise the limit, but a more sober solution would simply be to pay your balance down or off before your statement period closes. Check your last statement to see which day of the month that typically is, then go to the issuer's Web site about a week in advance of closing and pay off what you owe. It won't raise your reported limit, but it will widen the gap between that limit and your closing balance, which should boost your score.
4) Dust off an old card. The older your credit history, the better. But if you stop using your oldest cards, the issuers may stop updating those accounts at the credit bureaus. The accounts will still appear, but they won't be given as much weight in the credit-scoring formula as your active accounts, said Craig Watts, an executive at Fair Isaac & Co., one of the leading credit scorers. That's why Ferguson often recommends to her clients that they use their oldest cards every few months to charge a small amount, paying it off in full when the statement arrives.
5) Get some goodwill. If you've been a good customer, a lender might agree to simply erase that one late payment from your credit history. You usually have to make the request in writing, and your chances for a "goodwill adjustment" improve the better your record with the company (and the better your credit in general). But it can't hurt to ask.
A longer-term solution for more-troubled accounts is to ask that they be "re-aged." If the account is still open, the lender might erase previous delinquencies if you make a series of 12 or so on-time payments.
6) Dispute old negatives. Say that fight with your phone company over an unfair bill a few years ago resulted in a collections account. You can continue protesting that the charge was unjust, or you can try disputing the account with the credit bureaus as "not mine." The older and smaller a collection account, the more likely the collection agency won't bother to verify it when the credit bureau investigates your dispute.
Some consumers also have had luck disputing old items with a lender that has merged with another company, which can leave lender records a real mess.
7) Blitz significant errors. Your credit score is calculated based on the information in your credit report, so certain errors there can really cost you. But not everything that's reported in your file matters to your score.
Here's the stuff that's usually worth the effort of correcting with the bureaus:
Late payments, charge-offs, collections or other negative items that aren't yours.
Credit limits reported as lower than they actually are.
Accounts listed as "settled," "paid derogatory," "paid charge-o