We all know the obvious things that hurt your credit score.
A collection account, a late payment, and credit inquiries.
But there are things that can hurt your credit score that you many people do not know about.
In this article we’re going to list the top 10 things that hurt your credit score that you may not know about.
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1. Carrying High Credit Card Balances
Most people don’t know that high credit card balances affect your credit score more than anything besides late payments and collection accounts.
The amount of available credit you are used is called your credit utilization ratio which accounts for 30% of your credit score. Only your payment history (35%) has a bigger impact on your score. I would recommend keeping your balances below 10-15% of your credit limit in order to maximize your FICO score.
This year the credit bureaus have changed their scoring model to punish consumers carrying high credit card debt more severely than before. Make sure you are paying down your balances below 15% of the limit each month. Besides late payments and collection accounts your credit utilization ratio affects your credit the most.
2. Not Having a Mix of Credit Types
Just having one or two types of credit on your report can hurt your credit score. The FICO scoring system takes into account multiple types of credit and loans a consumer has, making up 10% of your total FICO score.
People with a mortgage, car loan, credit card, and other types of loans will have a higher score than someone with just credit cards. Try mixing it up, if you don’t have a great mix of credit, get a personal loan from your local bank or credit union instead of another credit card.
3. Past Due Library Books
The idea of an unreturned library book being reported as a collection account on your credit report sounds highly unlikely. However, it is common for libraries to report past due accounts that have gone uncollectible for several years.
Usually the fee is less than $100. You can contact the library and pay the past due balance, in some cases they will remove the negative item from your credit report entirely.
4. Unpaid Parking Tickets
Just like library fees, if you have multiple unpaid parking tickets the city may report them to the credit bureau as a collection account. It’s important to take care of all tickets, not just to keep from having a warrant for your arrest but also to stop further collection efforts.
5. A Single Late Payment
Some people think that just one late payment won’t affect their credit score that much. However, that couldn’t be farther from the truth. All it takes is a single late payment to plummet your FICO score.
Late payments are part of your payment history which has the biggest impact on your overall credit rating (35%). The older a payment becomes the less it affects your score. You can try to get a late payment removed by disputing it, but if you’re unsuccessful the only thing that will help you is time.
6. Cancelling Old Credit Cards
The average age of your open accounts makes up 15% of your credit score. Some people make the mistake of closing old credit accounts because they never use them and are surprised to see their credit score drop.
When you close an old credit card it can reduce the average age of your active accounts thus reducing your score. Try to keep your accounts open as long as you can. Instead of cancelling old accounts just cut up the card and leave it alone.
7. Co-signing for Someone
If you have good credit then at some point in time you’ve probably had someone ask you to co-sign for a car or loan at some point. While helping a family member in need get a car or credit card may seem like a good idea, it’s a huge risk.
As a co-signer on a loan or credit card, you’re just as responsible as the account owner for repaying the loan. If they miss a payment, or stop making payments all together, those late payments and collections will be reported on your credit history which can destroy your score.
Be careful if you ever decide to co-sign, as long as you know you’re responsible for making the payments if the person doesn’t and you’re okay with that.
8. Applying for New of Credit
Whenever you apply for credit, whether it be a personal loan, credit card or store card, lenders will perform a hard inquiry on your credit report. Multiple inquires will have a negative impact on your credit score. You should be very careful when you apply for things, make sure you really need it and that you will be approved if you authorize a credit pull.
Many loan and credit offers come pre approved where they perform a soft inquiry to get a basic idea on your ability to qualify for the offer before running a hard inquiry.
A “rate-shopping” period is where the credit -scoring system allows for multiple inquiries with the same type of lender in a short timeframe to count as a single inquiry.
For instance if you’re applying for a mortgage you have a 30 day window where multiple inquiries from lenders will not negatively affect your score. This is allowed so consumers can avoid predatory lender and effectively compare loan offers and rates from multiple lenders.
Get Your Credit Report and Scores for Free
If you haven’t received your free credit scores and report, you can get them online. There are several websites that allow you to get your free scores and report and monitor your credit completely free.