Sometimes we spend so much time trying to boost our credit score that we don’t realize that we might be hurting it instead.
Your credit score is typically made up of a few different parts, including:
- Payment history: 35 percent.
- Amounts owed (or credit utilization): 30 percent.
- Length of history: 15 percent.
- Types of credit: 10 percent.
- New credit: 10 percent.
While each part can impact your score differently, it’s important to pay attention to all of them. Here are some ways you could be hurting your score instead of helping it.
1. Not checking your credit report
While your score is a three-digit number that shows your creditworthiness, it’s your credit report that details your credit responsibility.
Your report is a detailed history of your credit since you began your credit journey. For some, it starts with student loans. For others, it could be a credit card.
You can get a free credit report from each of the three major credit bureaus — Equifax, Experian and TransUnion — once every 12 months to see if there are any red flags or errors. You can also get your credit report for free from Bankrate.
It’s smart to check your credit report at least every four to six months, says Ted Rossman, industry analyst at CreditCards.com, a Bankrate sister site.
“You should look for errors, because the Federal Trade Commission reports that about 1 in 5 Americans have mistakes on their credit reports,” Rossman says. “These errors can cause you to pay more for loans, or sometimes they’re so significant that your applications will be denied. You’ll want to get any incorrect information fixed ASAP, so when you check your credit report, look for accounts that don’t belong to you and late payments you believe you made on time.
2. Only making minimum payments
If you’re constantly hitting your credit limit, you become a liability to lenders. Consumer savings expert Andrea Woroch says you should never use more than 30 percent of your total balance across all credit cards, otherwise known as your credit utilization.
“Those who keep their utilization percentage low typically have higher scores than those who max out their credit cards constantly,” she says. “Maintaining a low balance will not only help you manage timely payments, but it also helps your credit score.”
If you’re constantly paying with your credit card and carrying a balance every month, you’re not only accruing interest, you’re keeping your credit utilization high. Once you go beyond 30 percent utilization, Woroch says your credit score can take a dip.
3. Paying bills late
Regardless of what bills you have, missing payments can crush your credit score.
“Those who constantly pay late show poor money management skills and this signals a risk to potential creditors,” Woroch says. “While many utility providers may not report the occasional late payment, those who regularly pay late face serious implications when it comes to their credit score.”
Payment history makes up 35 percent of your credit score. Late or missed payments may cause a huge drop.
“If you have really good credit, even a single 30-day late payment could drop you into mediocre territory,” Rossman says. “Make sure to pay your bills on time every time. If you made an honest, one-time mistake, ask your lender for a break (a goodwill deletion).”
4. Opening and closing accounts
Perhaps a while back you opened a rewards credit card for the attractive signup bonus, but now you want to close the account. Consider this before doing so.
In addition to opening many different accounts at once, closing accounts could hurt your credit score, too.
“Closing old cards with great history is not a good strategy,” says Aris Jerahian from Orange County’s Credit Union. “It indicates you are no longer demonstrating management of that credit line which could have a negative impact on your credit line.”
The length of your credit history accounts for about 15 percent of your overall credit score. The longer your history, the better your creditworthiness is.
Additionally, opening an account can cause a temporary dip in your credit score due to hard inquiries, which are a part of the new credit component of your credit score.
“Hard inquiries typically take a few points off your credit score,” Rossman says. “The good news is that the impact is typically short-lived, and by practicing good credit habits like paying your bills on time and keeping your debts low, you should regain any lost points within a few months.”
Rossman warns against applying for many different accounts, which can lower your score.
“Rest assured that if you’re comparison shopping for something like a mortgage or auto loan, FICO groups all similar requests from the past 14-45 days into a single inquiry (the term ranges from 14 days on older versions to 45 days on the latest FICO technology),” Rossman says. “So if you compare quotes from three different mortgage lenders in the same week, you’re totally fine. What you don’t want is to also apply for a credit card and an auto loan on top of that. Try to space out different credit applications by at least a few months.”
5. Avoiding credit entirely
If you’re trying to give your credit score a boost, you might think not using credit at all will show how responsible you are. But it actually has the opposite effect.
“Some people think they are doing (their) credit scores a favor by not borrowing or charging anything,” says Freddie Huynh from Freedom Financial Network. “Credit agencies rely on past payment history to gauge how borrowers will do in the future. If you don’t borrow, they have no information to rely on.”
If you don’t use credit at all, you might be credit invisible. This is where you don’t have enough of a credit history to generate a score. This can create challenges — if you don’t have a credit history, lenders can’t trust your creditworthiness.
There are plenty of ways to use credit responsibly, from credit cards to loans. As long as you’re paying your bills on time, in full every month, you’re on your way to a great credit score.