At The Credit Pros, we usually talk about what helps a credit score, but a lender friend of mine asked me to make this week’s Tidbit a “cheat sheet” about what hurts a credit score (fyi, my inventive lender friend plans to make this a handout to his borrowers…featuring the Credit Pros logo, of course). 7 Ways To Quickly and Easily Screw Up Your Credit:
- Carrying big balances. Keeping a big balance on a credit card can increase your credit utilization ratio, which is the percentage of your credit limit that you use. Note that because the ratio is calculated using the end-of-month balance that appears on your bill, your score can suffer even if you pay off your balance every month.
- Closing credit cards. Closing a card lowers the amount of credit available, which can hurt the debt utilization ratio.
- Paying late. Payment history is one of the biggest factors lenders consider, and makes up approximately 35 percent of your FICO score. Paying late on credit cards, student loans, mortgages, and even doctor’s bills can bring down your score if the company reports it to credit bureaus.
- Defaulting. Declaring bankruptcy or foreclosing on a home can easily slice 100 points or more from a credit score.
- Opening too many credit lines. If you’re continually adding to your potential credit, credit companies are going to look at that as a risk that you could become overextended at some point.
- Not having a credit card. Without any credit history, you’re typically considered unscoreable, meaning there isn’t enough activity on your credit file to calculate a score. This leads many lenders to deem you too risky to take a chance on
- Co-signing. A co-signer assumes equal responsibility for the amount owed, meaning any late payments or defaults will show up on your credit report
Now, if I could add an 8th “Golden Mistake”, it would be not letting The Credit Pros work on removing all of the nasty credit derogatories. A terrible mistake indeed!!