Your credit score is a crucial indicator of financial well-being. It can affect whether you can obtain a loan.
Some behaviors can affect your credit score and prevent you from meeting your financial goals. Here are the top five things you must avoid to protect your credit.
Key Takeaways
Late payments are major red flags for banks and other lenders. They signal financial instability and can significantly lower your credit score.
Even one late payment can have a noticeable impact, and multiple late payments can cause severe damage that could take years to fix. Set reminders a few days before payments are due, automate payments, or use a debt management app to ensure you never miss another due date.
When you apply for credit, a hard inquiry is made on your credit report. You may appear risky to lenders if you have too many inquiries quickly, and your credit score could decrease. Apply for credit only if necessary, and don’t open multiple accounts too quickly.
Excessive credit use, or spending too much of your available credit, can lower your score. Ensure your credit utilization is less than 30% on each card and every account you have. You can reduce your usage ratio by clearing your debts and increasing your credit limits.
Closing any old accounts can increase your credit utilization ratio. Even if you don’t need or use them, keeping the accounts open may be a good idea.
Credit report errors are one example of what hurts your credit score. Check your credit report regularly at all three big credit reporting agencies (Equifax, Experian, and TransUnion) and immediately correct any errors. All the credit bureaus provide you with a free copy of your credit report once a year.
Several credit factors go into your score. Knowing these can keep your credit standing in good shape.
Managing your debt wisely gives you a valuable asset that can help open doors to various financial opportunities. By avoiding what lowers your credit score and practicing responsible credit management, you can maintain a healthy credit score and achieve your financial goals.
Negative credit report entries—such as late payments, collection accounts, bankruptcy, and public records — can negatively impact your credit score.
Credit scores can help determine whether you can qualify for loans, get an apartment, receive affordable insurance, and even gain employment in some sectors. Also, it can affect the interest rates you’re offered on loans and credit cards.
Your credit history is affected by any credit card when the issuer reports your payments to the major credit bureaus. This can include major credit cards (Visa, Mastercard, American Express, Discover, etc.), store cards, and secured credit cards. The responsible use of any credit card may help to establish good credit.
The top two are payment history (35%) and credit utilization (30%). Making regular monthly payments and using credit sparingly is essential for your credit score.
Every year, you can get a free credit report from all three credit bureaus (Equifax, Experian, and TransUnion). These reports provide your credit history but not your score or the specific factors affecting it. You may need to subscribe to those details.
When considering what affects your credit score most, not paying your bills on time is the worst credit-scoring habit you can get into. It signals financial vulnerability and can lower your score to the point where you may not get credit again.