7 ways to hurt your credit score

We often discuss improving credit scores in this space. While this is important information, it’s even more important not to damage your credit if you can. An ounce of prevention goes a long way in the world of credit.

Here is a list of seven of my favorite deadly credit sins that are sure to hurt your credit score, even when you think you are doing the right thing.

1. Pay less than the minimum

Payment history is worth 35% of your FICO score. This calculation weighs heavily on you by making at least your minimum payment. So if you have a choice, don’t pay less than the minimum. Some people believe that as long as you make a payment, any payment, there is nothing a creditor can do to you. This is definitely not the case!

But what if you just can’t make the minimum payment? If you don’t, you’ll be hit with a trio of fees, interest charges, and credit damage. In addition, your minimum for next month will increase. In addition, you may be contacted by your creditor to find out why you have not made your payment in full and whether you can remedy any shortcomings immediately.

It helps to know that almost all creditors offer hardship programs to help their clients through a difficult time. These are usually short term, but if your situation is likely to resolve itself within a few months, this might be exactly what you need to get over it. Don’t go too long without reaching out (the sooner the better). And you will also have to pay the reduced amount in full each month, both to stay in the program and to improve your credit score.

2. Pay just the minimum

This seemingly harmless behavior can hurt your score due to something called the credit utilization rate. Credit usage (how much credit you used) represents 30% of your FICO score. If you make your minimum payments on time, as we saw above, you will have met the payment history portion of your score.

Some consumers mistakenly believe that paying the minimum and keeping a balance improves their credit rating. But if you only make minimum payments, you risk seeing your usage score suffer. This is especially true if your balance is high to begin with, as often the minimum payments do little more than cover your interest payments for the month without hitting your principal balance.

Your usage needs to be 30% or less (I personally recommend 25%) to get the most out of this part of your credit score. According to FICO, maximizing a credit card can result in the loss of a penance of over 100 points if you have a high credit score.

3. Withholding of payment in the event of a dispute

If you have a disagreement with your credit card company regarding a purchase, you have the right to withhold payment. Card users often think that once disputed, the charge does go away and that they still have the disputed amount available for spending.

However, you should be aware that the amount in question can still be deducted from your credit limit until the dispute is resolved. So, again, you are looking at the potential damage to your usage score factor if you choose this option. And if you are unsuccessful, you will owe the full amount, and interest charges will likely be added on top of that.

4. Close a card with a high credit limit

Again, you risk damaging your usage score. When you close an account, especially an account with a high credit limit, you have reduced your available credit, thereby lowering your usage score.

People mistakenly believe that because positive credit card accounts are reported for 10 years, the card’s credit limit is still factored into their credit usage rating factor. It is not. However, the closed card will continue to count towards your credit history.

Although it only represents 10% of your FICO score, this aspect is the only one over which you have little control, unless you are added as an authorized user on an older account or, as in this case, whether you choose to close an account. A positive history stays on your credit report (and affects your credit score) for 10 years, but if the account is closed then it will disappear from your file and stop doing you any good. That’s why it’s a good idea to keep your accounts open if you can.

5. Add an authorized user or become a co-signer

This is tricky, especially for someone who has an emotional connection with someone who has bad credit or no credit. Parents naturally fall into this category, but other family members, friends and lovers can also find themselves in this situation.

Yes, there are benefits to be had for someone looking to build up credit, but there is also a risk that you take. A risk, it should be noted, that a professional lender (who only makes money by saying yes) has refused them for good reasons. Whenever you choose to add someone as an authorized user or co-sign a loan, you should set clear limits on how much they can spend and how they plan to pay their share of the loan. invoice.

Good intentions and fleeting gratitude don’t pay off. Remember that at the end of the day, the card issuer or lender doesn’t care who made the purchase – you are the one they have an agreement with and you are the one responsible for making the purchase. ‘make payments.

6. Use a balance transfer card for purchases

Transferring balances from one card to another to take advantage of a lower interest rate can be a smart financial decision. But you need to get the balance before you start using your Balance Transfer Card for other purchases, as the promotion window is usually limited.

Many cards offer great rewards for purchases made during a promotional period and while it is certainly tempting to use it for day-to-day spending, you’d better ignore this aspect until you’ve paid the original balance. And, as stated above, don’t close the card you paid for unless you have a really compelling reason to do so.

7. Request too many cards at once

If you’ve worked hard to get your credit score to a place where you feel you can qualify for better cards, be sure to only do it sparingly, one card at a time. You might think that once your score hits a high number, it’s time to apply for all those hard-to-get cards that require high scores before your score drops. But serious inquiries will drop your score further as each lender picks up your case (each serious inquiry can drop your score by about five points). So the last lender doing a survey can see a very different score from the first one.

While new credit only accounts for 10 percent of your FICO score, new consumers may find that more weight is given to this category. Give your score time to recover from the hard blow you took during the investigation before you apply for credit again. The deadline is not set in stone, but you should probably give yourself at least six months. And don’t apply for credit just because you can; credit should be available on the basis of need.

At the end of the line

Like I said earlier, this is by far not a complete list of ways you can hurt your score, just a few of my favorites. Collections, foreclosures and bankruptcies are of course great ways to destroy your score and should be avoided at all costs. The best way to avoid hurting your score is to know how your score is calculated and to do the right things to protect those aspects. Pay your bills on time, monitor your credit card usage, and apply for credit only when you need it. Doing these things will keep you on track to getting the credit score that you want.

Good luck!

Have a question about Steve’s credit score? Send them a message on the Ask Bankrate Experts page.

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