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Five Ways You Could Damage Your Credit Score

Written by Equifax Experts on November 13, 2013 in Credit  |   10 comments

Lenders use your credit score to assess your risk as a borrower, so it’s important to keep it in good shape. These credit mistakes can negatively impact your credit score, so do everything you can to avoid them.

Equifax credit scoreYour credit score doesn’t need to take a backseat as the busy holiday season approaches. Instead, as the year winds down, start thinking about ways you can improve your creditworthiness in 2014.

When you apply for credit, lenders evaluate your credit score and the information in your credit report to assess your risk as a borrower. With a higher credit score, lenders will view you as less of a risk and will be more likely to extend you credit, and they will also likely offer you the best terms and interest rates.

Before you can positively impact your credit score, you need to understand which credit behaviors will have a negative impact on it.

While credit scoring models have different ways to evaluate the information in your credit report, there are five possible ways you can damage your credit score across the board:

1. Making late payments.

In general, your payment history has the strongest impact on your credit score. About 35 percent of your Equifax credit score, for example, is based on your payment history. That means that any late payments—whether on credit cards, an auto loan, your mortgage, or another credit account—could cause your credit score to take a dive.

Your late payment history will stick around on your credit report, too. For example, one delinquent payment that is 30 days late can remain on your credit report for up to seven years.

Tip: Paying your bills in full and on time should reflect positively on your credit score. To avoid a late-payment blemish on your credit report, consider using automatic payments or setting up electronic payment reminders on your phone or computer.

2. Racking up high balances.

Your credit score also takes into account your credit utilization (how much of your available credit you are using). A high debt-to-credit ratio—meaning that you are borrowing a significant portion of your available credit—will generally have a negative impact on your credit score.

Tip: Work on keeping your ratio of debt to available credit as low as possible to help boost your credit score. Avoid carrying a balance of more than 30 percent of your credit limit, since lenders may view you less favorably  if you take on any more debt. If you are carrying debt, work on paying it off as quickly as possible. Paying off your current debt may open up some of your available credit.

3. Applying for a lot of credit at once.

If a creditor or lender accesses your credit report because of a transaction you initiated, it will trigger a hard inquiry on your credit report. If you apply for too much credit over a short period of time, triggering many hard inquires, your credit score could drop and lenders may view you as higher risk.

A single hard inquiry will usually not have a significant impact on your credit score, and credit scoring models generally don’t penalize consumers for shopping for the best rate on student loans, auto loans, and mortgages within a short timeframe.

Tip: Because credit scoring models consider your recent credit activity to evaluate your need for credit, only apply for credit when you really need it to avoid overextending yourself.

4. Closing an account.

Closing one of your credit accounts could reflect negatively on your credit score because it will change your credit utilization. If you close an account, you may lower the combined credit limit on all of your accounts, making your debt-to-credit ratio appear higher.

Tip: While positive credit behavior—such as paying your bills on time—will reflect positively on your credit score, you don’t need to carry a balance on all of your accounts. Instead of closing an account, consider paying off a small purchase on the account every few months, which will generally get reported to the credit reporting agencies.

5. Having a short credit history.

About 5 percent to 7 percent of your Equifax credit score is based on the length of your credit history, and the score considers both the age of your oldest account and the most recent account opened.

If you do not have at least one credit account open for at least six months or if you do not have at least one update to at least one credit account in the last six months, you may not have a credit history or credit score. Without a credit history, it is difficult for creditors to determine your creditworthiness when making decisions about extending you credit.

Tip: If you plan to borrow money in the future, start thinking about establishing your credit history now. If you don’t have a credit history or you have a thin file, consider opening a retail, gas, or low-interest credit card in order to start building a positive credit history.

As you work on boosting your credit score, make sure to regularly monitor your credit report so you know where you stand. If you spot any errors on your credit report, file a dispute with the necessary credit reporting agency to have the erroneous information corrected as soon as possible.

10 comments

  1. Marian McGaughey says:

    What is the effect of having a “frozen” credit, due to check fraud several years ago?

    • J.D. says:

      All that freezing your credit does is make it where noone can access your credit report with the purpose of opening new accounts. Any of your pre-existing credit accounts can still report and if you ever need to apply for something all you have to do is call in to the agency and have them unfreeze it for a certain period of time.

  2. j. harris says:

    with poor credit, due to 3 judgements, a few closed accounts. will my credit score increase? once i pay those bal in full…as i am currently paying on current loans on time.

    • stevem says:

      Time heals MOST wounds… can tell you from personal experience that some bad decisions and the typically negative financial effects of duvorce left me with “options” including low credit limit / high interest credit cards and auto loans @ 18%!!… took about 3+ years, but I worked with all 3 major bureaus, creditors (past and present), and took a long, bard look at my own spending (ability, reality, etc.) and restructured my entire approach. You can try flying under the radar for SEVEN-TO-TEN YEARS, while suffering from doors-slammed-in-your-face-itis, until bad decisions and misfortune make their exodus from your credit file, or you can take responsibility and ownership over your finances and fix it. Long story short, there are plenty of FREE resources out there to help you make a plan to fix your situatikn. Seek them out, make a plan for yourself, be diligent, stay on task, don’t add to your already-negative credit file, and in time you will get out from under and breathe again. It is not hopeless, but it will take work, discipline and commitment. Good luck to you!

  3. terrence says:

    How long do hard inquies stay on your report and when they drop off will your score go up

  4. Marsha Barrell says:

    why is it that when your spouse dies, and you have to change everything
    into your name, the FICO is lowered. I have paid off my house,home equity
    loan, and car. I keep my credit card balances paid off every month.
    I don’t get it. My FICO went from 830 down to 780. I haven’t done anything
    different regarding paying my regular bills on time.

  5. Mike says:

    Yes, it will.

  6. Randy S says:

    I have 3 judgements on my credit report.@ are tax liens that were released and one is a credit card that I am paying off.Do the released tax liens still stay on for 7 years ,and are they a negative even though they were released and does the credit card judgement stay on until it is completely paid off or does it drop off after 7 years reguardlees of the balance I will still have at that time?

  7. Blair says:

    Once pass balances have been paid to a balance of zero, why are the negative accounts still reported as negative accounts? How long will I have to wait for these items to stop being reported to the credit bureaus? I had multiple balalances that I have completely paid off.

  8. Anonymous says:

    Blair, negative accounts will stay negative until they fall off of the credit report. If you have a charged off account that you paid, it’ll just be catergorized as a paid charge off. Negative accounts will stay on your credit report for 7 years past either the first late payment or the last time the account was active (this day used is picked by the creditors)… Collection accounts are the same, once an item is sent to a collection agency it cannot be recovered.. It’ll stay for 7 years past the purge date which is general the date the first time the account went past due or if it’s a medical bill, it’ll be when the medical service was rendered.


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