12 Mistakes that Will Lower Your Credit Score

12 Mistakes that Will Lower Your Credit Score

Having poor credit score makes you vulnerable to some awkward and embarrassing situations, such as getting declined on the spot to finance a new set of furniture or shiny new electronics. But the case could get worse as bad credit rating can make certain circumstances even more challenging.

Lenders and creditors certainly favor borrowers with good to excellent credit standing, especially when one is trying to finance a new home or car. Even getting a rental apartment or landing a job can be influenced by your credit score. Let’s just say that credit score impacts almost every financial decision you make as an adult.

Credit Score Basics

The widely-used credit measuring system in the system is FICO which ranges from 300 (minimum credit score) to 850 (maximum credit score). The general idea is that the higher the credit score, the better.

But further breaking down the credit scoring, below 600 indicates bad credit score; poor credit score is between 600 and 649, fair credit score lies between 650 and 700 while good credit 700 to 749. Lastly, excellent credit score starts at 750.

According to ValuePenguin, the average credit score in the US is 695, the highest figure from the data gathered since 2015. Meanwhile, www.credit.com says that nearly one-third or 30% of Americans have a poor credit score.

Unfortunately, many people are still baffled about what a credit score can do and how it impacts their lives. According to a report published in NBC News, almost half of the surveyed adults were unaware that poor credit could hinder from obtaining a desirable cell phone plan. Meanwhile, 41% of the respondents believed that their credit score improves if they leave at least a small balance on their credit account.

All of these are telling us that credit score is essential in so many ways in our lives. Having poor credit score will likewise put you at a disadvantage, particularly when it comes to financing. It is important to realize that credit scores don’t just rise and fall on their own; some of our financial habits and behavior can bring credit score down. These are what you need to avoid if you’re looking into maintaining a healthy credit standing.

Most Common Mistakes That Will Tank Your Credit

Short Credit History

The age of your credit history makes up 15% of the credit score computation. According to Experian’s Public Education director, Rod Griffin, the length of credit history refers to the age of the account – how long since it was established and became active. The more aged a credit account is, the better it is for your credit score. Also, you want to make sure to feed these credit accounts with positive information by staying away from missed payments and delinquencies.

While you have little to zero control when it comes to the age of your credit history, except for the fact to let it age over time, you want to make sure that all your credit accounts remain in good standing. With that said, you must strive to manage credit responsibly by keeping credit use low, paying bills on time and using credit adequately.

Poor Payment History

35% of your credit score is made up by payment history. This aspect of your credit score covers the various accounts in your name; public records and collections, late payments and delinquencies.

According to the FICO website, missing one or two payments do not seriously negate your credit score, but if it occurs regularly, your credit score will certainly take a dip. Since payment history takes a good chunk of your score, you want to make sure that you pay your debts and loans on time.

Lenders, even landlords, can report you for being a delinquent borrower. From apartment owners, banks and credit issuers to all sorts of creditors and lenders, missing your payments on a regular basis can lead them to report you. The collective result of such negligence will soon affect your credit report in a very bad way.

If you’ve been struggling to be prompt with your payments, now is the time to make a change. Consider setting up reminders or arrange automated payments so you don’t miss your due date. Also note that consistently missing payments of major credits, such as car loans and mortgage, can profoundly impact your credit score.

Poor Debt to Credit Ratio

Debt-to-credit ratio takes the second largest share in the pie when it comes to credit score computation, accounting a whopping 30%. Debt-to-credit ratio refers to the amount of debt you have against your available balance or limit. It covers all your debts and loans against all your credit limits on all your accounts, as well as the amount of debt in each of the single accounts.

When you applied for a credit line, the credit issuer didn’t just appoint a random credit limit to you. They took into consideration your income and debts. These factors do not affect your credit rating, but how you use your credit limit does.

According to www.creditrepair.com, the lower your credit utilization rate, the healthier it is for your credit score. Most experts agree that you should keep your utilization rate below 30%. For instance, if you have a $10,000 credit limit, you have all the means to spend as much as this amount any way you can. However, lenders take that as a red light for improper and unwise financial management. Consequently, maxing out your credit limit makes you a good candidate for a high-risk borrower.

But if you bring down your credit utilization rate to just $3,000 or below, it somehow tells lenders that you are responsible and cautious about your spending. It is also even more important to bring down your utilization rate as low as you can when you’re considering applying for a home loan, car loan and other forms of major investments. The lenders are just more likely to “trust” a borrower who doesn’t splurge indiscriminately, and your credit score is just one indication for that.

If you’re looking to improve your debt-to-credit ratio, aim to pay off your loans and debts in full and in time. To make that possible, make sure to charge your credit cards carefully, ensuring that you have the financial capacity to pay the bill off before or during the deadline.

If that is tough to do at the moment, consider paying off the credit with the highest interest first while paying at least the minimum on the rest of the accounts. This will help you kill a high-interest debt faster, while slowly but surely making a dent in the rest of your debts. Consequently, this brings down your debt-to-credit rate as well.

Overusing Your Credit Cards

The credit card is probably the handiest, most convenient currency ever invented for the humanity. According to the statistics by TYSY, a payment processor company, only 12% of the respondents preferred to use cash, while 33% opt for credit cards.

Credit card use has certainly grown over the years. With all the rewards, miles, cashbacks and other forms of perks, it’s also easy to abuse credit cards, which can also consequently hurt your credit score.

One of the three credit bureaus, Experian, explained why abusing credit cards could severely damage your credit standing. Maxing out your credit cards can bring down your credit utilization rate, a factor that impacts your credit score by 30%. Additionally, consistently going beyond your credit limit may force the lender or credit issuer to reduce your credit limit, increase your interest rate, or even worse, they may forcibly close your account – all the while damaging your credit score.

While all of these happen, the lender regards you as a high-risk borrower, limiting your financing opportunities in the future.

What you can do to avoid this ugly scenario is to use your credit cards with caution. Never charge your cards if you’re unsure that you can pay by the due date. Watch your purchases as well and consider bringing cash instead if that helps you be more vigilant while shopping. Lastly, strive to keep your balances low to improve your credit utilization rate.

Not Using Your Credit Cards

Overusing your credit cards is a surefire way to negate your credit score, so it’s probably best to stop using your credit cards altogether, right?

No. Not using your credit cards can also negatively impact your credit score.

When the credit issuer sees that you’ve not been using the credit account for some time, the company will not be able to generate a credit report for that account. The credit issuer may then decide to close your credit account – both of which can affect your credit score computation.

According to Barry Paperno, consumer affairs manager of FICO, “the score wants to see some activity.” If your credit account is inactive, it also goes to say that no data can be generated from it to contribute to the computation of your credit score. You may have a zero balance on one of your cards, but if all your credit accounts show up no balance altogether, your credit score could dip down by several points.

The only way to provide credit bureaus information about how you handle credit is to use such credit. You need to use it wisely and watch your credit utilization rate to generate favorable credit information.

Frequent credit checks

Checking your credit score is good because it alerts you of your credit situation and allows you to formulate solutions to credit issues. However, credit checks that are performed concerning a credit application can seriously tank your score.

There are two types of credit checks: soft inquiries and hard inquiries.

A soft inquiry is when you pull out to check your own credit score. You can check by availing of your free credit report annually, or anytime, by paying a fee. A potential employer or an institution may also do a soft inquiry to determine your eligibility for a job or marketing offer. Your credit report contains your soft inquiries, but they don’t impact your credit score.

On the other hand, hard inquiries are credit checks performed by a lender or credit issuer to determine your eligibility for their financing instruments and services. When you apply for a new credit card, mortgage, auto loan and other forms of credit, the lenders typically pull out your credit report, which is counted as a hard inquiry.

Now, having too many credit checks in a short span of time can damage your credit score. Lenders take this as a sign of financial desperation and unwise money management, therefore making you a risky borrower. One hard inquiry does not hurt your score, but having multiple checks at the same time or checks that are very close to each other can cause your score to drop several points.

You can’t prevent hard inquiries if you have the intention to apply for a new line of credit or loan. However, you can prevent these inquiries from staining your credit report by spacing your applications out. Make a plan. When do you want to apply for a mortgage and auto loan? Do you really need to have a new credit card at the same time? Don’t apply for new credits if you don’t need them and make sure to spread out your applications in a span of several months to a year.

Closing Accounts

So you’ve just paid down the bill on one of your credit cards and brought down the balance down to zero. Now, you’re considering closing this account as you’ll no longer use it. Or, you’re just grateful to be over it because the annual fees on that card are just too high for your liking, and thought it’s better to close it for good.

Not so fast.

Closing credit accounts may make sense, especially if you’re looking to curb your spending temptation, you want to switch to all cash or when that account seems to be no longer useful to you. But first, you must understand that closing an account, particularly an old one, can tumble your credit score.

Closing an account reduces your credit limit and increases your utilization rate. Keep in mind that credit utilization rate accounts for 30% of your credit score and increasing it can damage your score by several points. For instance, if you currently have $10,000 limit on three cards and you decide to close one card with $3,000 limit, your total credit limit dips to just $7,000. And if you have $3,000 balance on all three cards, closing one of the accounts would bring your balance to credit ratio near 50%.

Additionally, closing credit accounts affect the age of your credit. FICO favors credit lines lengthier and positive histories than those new young accounts. Deleting all the data that come with an old credit account could negatively affect your credit score.

It would be best in your credit report’s interest to keep your old accounts even if you’re no longer using them. But if you’re set to closing some of your accounts, you must go through a deliberate process. First, make sure to pay off the balance of the said account. Second, bring down the balances on the rest of your credit accounts to enhance your debt to credit ratio. Finally, contact your credit issuer’s customer service department to learn how to close accounts properly.

Missing Payments

Missing payments happens even to the best of us. While you have every intention to pay your credit card bill or student loans, you might encounter a difficult financial patch that hinder you from giving the payment on time. Or, you could have overlooked the due date and realized it weeks later. Still, missing payments can cause financial and emotional stress, and the consequences would often reflect on your credit score.

Your payment history takes up 35% of your credit score, and late or missing payments can deeply dent your score. The severity of the consequences depends on a lot of factors, including how many days late your payment is, how many times you’ve missed payments in the past and how recent such late payment was.

According to MyFico.com’s PR Director, Anthony Sprauve, late payments are typically reported by lenders if it’s been more than 30 days past due. For instance, if you miss your payment by a week or two, you’ll inevitably incur late fees and charges, but it will not show up in your credit score just yet. However, if it’s already been a month since the due date, it’s most likely that the lender has reported you to the credit bureaus, if not yet. The later you settle a missed payment, the more severe its impacts are to your credit score.

The lender has the discretion to report you if you miss a payment once. However, if it happens time and again, you can expect for uglier consequences such as regularly paying late fees, increase on your interest rate, a decrease of your credit score and the record could stain your credit report for up to seven years.

If you’ve missed your payments, pay it up as soon as you can. Don’t delay any longer to prevent delinquencies from damaging your records. Prevent future slip-ups by arranging for automated payments and setting up visual and electronic reminders.

Debts Going to Collections

If you have debts that you failed to settle for 180 days or more, it is possible that the original creditor will refer your delinquent accounts to a collections agency. When debts go to collections, your credit score can suffer substantially, so it’s best to settle your obligations always on time.

If you currently have debts in collections, know that you’re not alone. Around 30 million Americans have one or more debts turned over to a collections company. But that doesn’t mean all of them are debts left neglected by borrowers. Some were erroneous and outdated reports that made their way to people’s credit reports.

Unfortunately, debts going to collections are so much harder to deal with than a few cases of missed or late payments. This negative information remains on your credit report for seven years. When you try to apply for new credit or loan and the lender sees that you have debts in collections status in your report, they take it as a sign that you may not be managing your finances properly.

Additionally, lenders consider you as a high-risk borrower and treat you less favorably. You may or may not get the financing service that you want, or you could end up with a high-interest deal.

But perhaps the most significant impact of having debts in collections is on your credit score. Your score could drop substantially when you have accounts branded as “collections” on your report. How much your score could drop depends on your credit score. Generally, the higher your credit score, the more severe it plummets. They also take into consideration how recent the debt was turned over to collections as well as other factors. The “collection” status becomes less impactful with the passage of time and is diminished entirely from your report after seven years.

But that doesn’t mean that you shouldn’t do anything about debts going to collections. You can approach the collections agency to come up with friendlier payment structure so you can slowly by surely pay the debt off. If you believe that your accounts have been mistakenly handed to collections due to error or outdated information, make sure to correct it right away. Don’t leave it smudging your credit report as that can limit your potentials for financing in the future.

House Foreclosure

If you are considering foreclosing your home or are already in the process of house foreclosure, you must understand how this can affect your credit score and financial future.

Foreclosures generally don’t happen overnight. A few financial issues may have already inflicted you, such as missing a few payments or having some delinquent debts. Most mortgage companies start reporting late or delinquent mortgage payments when you are 30 days past due your bill. Also, most banks wait around 90 days before they start with the foreclosure process. At this point, you’ll probably notice that your credit score has dipped significantly.

How low your credit score can go due to foreclosure often depends on how high your credit score is. If you have good to excellent credit score, you can expect for it go down by several points. According to FICO, if you have a high credit score at the time of foreclosure, say 780, the score could drop by as much as 160 points. On the other hand, you may lose as much as 105 points off your 680 score due to foreclosure.

Apart from a severe dip in your credit score, foreclosure may also lead you to suffer “deficiency.” This is when you pay up the difference between the value of the property and how much you still need to pay for the mortgage. If you’re unable to pay the deficiency, you might then be forced to declare a bankruptcy which can hurt not just financially, but also emotionally.

Just like most negative information, foreclosure also stains your credit report for seven years. There is nothing much you can do when you’ve reached this point but try to rebuild your creditworthiness by feeding your report with positive information. The foreclosure status will soon ebb from your report with the passage of time, and you should creditworthy once again.


Bankruptcy is a severe status you’ll never want to be in or see in your credit report. It stays much longer on your record than most negative information depending on the type. For instance, your credit report will carry it for 10 years if it is a Chapter 7 and Chapter 11 bankruptcy, while Chapter 13 bankruptcy remains on your record for seven years.

Unfortunately, a bankruptcy on your public record can do as much 200 points damage to your credit score, effectively making a fairly good credit score a bad one. Consequently, bankruptcy can and significantly decreased credit score can impact your ability to obtain financing, particularly when you’re trying to apply for a new credit account, an auto loan or a mortgage loan.

It is therefore important to understand the risks and consequences of filing and declaring bankruptcy. On one hand, it absolves your financial woes. But not filing for bankruptcy is not a great decision either, especially if you already admit that you’re not financially capable of dealing with your debts. Your debts could end up getting turned over to collections, an event that’s still as detrimental to your credit health.

But all hope is no lost when you decided to file for bankruptcy. There is nothing much that you can do at this point than let time drop it off from your credit records. While you’re at it, make sure not to incur new debts and do the best that you can to manage your existing debts. Avoid opening new accounts and make sure to pay all your bills on time. Soon enough, the dreaded bankruptcy label on your credit report will fall off, and you would have slowly rebuilt your credit by then.

Using Only One Type of Credit

The often overlooked factor in computing credit scores is the mix of credit. It is only 10% of your credit score computation, certainly not as large as payment history and credit utilization ratio, but it can still make quite an impact on your credit health.

According to the MyFICO website, having a good mix of installment loans and credit card accounts is good for your credit standing. What FICO wants to see is that you’re not just good at handling a single credit account, but importantly in dealing with multiple loans and debts at the same time. This also impresses to the lenders and creditors that you have the financial acumen to properly manage financial obligations simultaneously.

According to Barry Paperno, FICO scoring expert, “all things being equal, consumers with a ‘mix’ of credit types on their credit reports tend to be less risky than those who have experience with only one type of credit.” With these in mind, you’d want to strive for a diverse mix of credit, ideally containing conventional credit cards, mortgage, student loans, auto loans, retail store cards, bank accounts, and even rental data. As long as you pay these loans and debts promptly and responsibly, the 10% factor for credit mix should go a long way in stretching your credit score.

However, you shouldn’t go opening up new accounts right then and there just to obtain a good mix of credit. Before you do that, you should assess whether the new credit is necessary, it is beneficial and that you’re financially capable of paying it up. Otherwise, you might find it hard to juggle all these financial obligations, leading to more debts and consequently, more drops in your credit score.


Your credit score affects most, if not all, of your major financing decision in your adult life and it is in your best interest to keep your score as healthy as it can get. While it takes time to build and maintain a good credit score, it also only takes a few mistakes and financial mishaps for it to go down severely by several points.

Take the time to check and monitor your credit score to get a more solid idea where you may be failing. If you’re constantly late with payments, it’s high time you become more prompt and responsible. If your credit report tells you that you’re using way too much credit than you ought to, consider cutting back your credit use.

There are several ways to rectify these mistakes so don’t lose hope if your credit score is not currently looking good. Focus on correcting negative financial behavior and a better score will follow.