5 ways you are hurting your credit score
You may already know how important your credit score is to your financial well-being, but you may not know that there are many things you are doing that are hurting your credit score.
Here is a list of pretty big ways you might be hurting your credit score.
1. Paying you bills late is hurting your credit score
There are several factors that go into determining your credit score, but having a long history of making payments on time is one of the most important factors that goes into your credit score. It’s the prime factor in determining your credit worthiness. By failing to pay your bills on time your score gets dinged pretty hard.
2. Maxing out your credit cards is hurting your credit score
Your credit utilization ratio is another extraordinarily important factor in determining your credit score. Credit experts recommend never exceeding 30% of your credit limit on your credit cards. For example, if you have a $1,000 credit limit that means you should never exceed $300 of spending in one month.
Many people mistakenly think that if they never exceed their total credit limit and always pay in full every month that their score will be high. However, what gets reported to the credit bureaus each month is your balance before you make your monthly payment so letting the balance go up will hurt your score, even if you pay it off in full each month.
Note that your balance is only reported once per month, so you can pay down your credit card balance before the bill arrives so it appears low when it’s passed along to the credit bureaus.
Another option is to try to get your credit limit increased or open up a new card.
3. Co-signing for people
When you co-sign a loan for someone you are opening yourself up to all the possible negative credit marks if they fail to make payments on time. ow-back from any bad activity that happens down the road. The loan will show up on your credit reports and any negative items like late or missed payments will start hurting your credit score. It might be awkward to say no to a family member that asks you to co-sign a loan for them, but it’s gonna be a whole lot more awkward if they ruin your credit by not making their payments on time.
4. Taking on too much credit at once will hurt your credit score
If you open up too many credit accounts in too short a time period you will be hurting your credit score. It’s a flag to banks that something it going on and that you might be in financial trouble. And the other thing to keep in mind is that every time you apply for a new credit card or loan a lender makes a “hard inquiry” into your credit. This will temporarily knock down your credit score, although if it does it probably won’t be by much and is only for a short time. Inquiries stop being factored into your credit score after 12 months.
5. Avoiding credit altogether is also hurting your credit score
It’s not just what you are doing with your credit that can hurt your score, it’s also whether or not you are even taking out any credit to begin with. It seems a bit counterintuitive but avoiding credit altogether is hurting your credit score. The reason this is a bad idea is that when you want to make a big purchase down the line like buy a car or even buy a house, you are likely to need a loan. But banks will want to assess your credit risk by looking at your credit history. And if you don’t have any history to show them, that can be as bad or worse than having some negative marks on your credit.
How to build a high credit score
Lucky for you, we’ve written on this subject. If you are just getting started trying to build or improve your credit score, read this article: 3-step guide to building a high credit score in your 20s
