You’ve built your credit score into something that you’re proud of having. Or, maybe you’re rebuilding after not being financially responsible early in life. No matter the reason, you don’t want simple errors to ruin your credit score.
There are quite a few things that can happen that will damage your credit score once your lenders report them to the credit bureaus. Here is a list of ten simple things to avoid and not ruin your credit score.
Paying Your Bills Late
It almost goes without saying. Paying your bills late is the fastest way to damage your credit score. Your payment history and timely payments make up 35% of your FICO score that the Fair Isaac Corporate calculates. Over 90% of all lenders use the FICO score to make their determination about a borrower. Paying your bill on time, even if it is the monthly minimum payments, should be your top priority to preserve your credit score.
Like paying late, skipping payments is a quick way to ruin your credit score. Skipping payments and paying late are what factors into the 35% payment history category with your FICO credit score. While the other three credit bureaus, TransUnion, Equifax, and Experian, have their own formulas for their proprietary credit scores, each bureau is almost like in the priority they place on payment history.
Keeping High Credit Card Balances
Another factor that the credit bureaus use to compute your credit score is your credit utilization. Credit utilization is the ratio of your credit limit to the total amount you have borrowed.
So, for example, if you have a credit card limit of $10,000 and you have a balance of $5,000, your credit utilization ratio is 50%. The amount of debt you owe and your utilization rate comprise of 30% of your FICO score. A fast way to ruin your credit and damage your credit score is to maintain high credit card balances.
Opening Too Much New Credit Too Fast
In most cases, if you open up multiple lines of credit or credit cards in a short span of time, it will negatively impact your credit score. While that’s not necessarily true when you shop around for a new car loan or a mortgage, it can affect your credit with multiple credit card applications. The credit bureaus have soft and hard credit pulls and shopping around for the best rates on car loans and mortgages are factored into their proprietary algorithms that compute their scores.
But, if you are simply going on a shopping spree and opening multiple store credit cards, you’ll ruin your credit and damage your credit score. You should space out applications for new credit.
Closing Cards with High Limits
Closing your credit cards can damage your credit score. It’s a little contrary to what you would typically think. You would think that since you have less credit out there, you’re less of a risk to borrowers. But, the opposite can be true.