5 Unexpected Things That Hurt Your Credit Score

By Erica Holland

When was the last time you paid for your groceries in cash? I certainly can’t remember that far back. With credit cards and digital wallets dominating today’s payment landscape, most of us are going cash-free. Between credit cards, student loans, and mortgages, our financial lives are more digital and automated than ever before. Not to mention, they rely on one very important number: your credit score.

It’s safe to say that keeping your credit healthy is a high-priority item and a recurring theme around ModMoney. Keep scrolling for the most common mistakes that put your credit score at risk (P.S. they’re all avoidable).

photo via cecilia gomez

1. Being late on a credit card or loan payment (even just one!)

Back in the good old days, being tardy to class was a harmless offense. But in the real world, being tardy on your payments is costly in more ways than one. Not only does a late payment result in extra fees and interest, but it can seriously hurt your credit score. If you are over 30 days late, the record will hit your credit report and stay there for up to seven years. Since 35% of your credit score is based on your payment history, this is especially harmful. So avoid being late at all costs. Set your payments to autopay every month to remove any risk of forgetting.

2. Maxing out your credit cards.

Your credit limit represents how much you can spend on your credit card. But what you should spend is a different story. Your credit card balance as a percentage of your credit limit is a metric known as credit utilization. To keep your credit score high, try to keep this ratio between 20-25%. This will show lenders that you can responsibly manage your credit lines. For example, if you have three credit cards with limits that sum to $20,000, don’t spend more than $5,000 per month across them.

photo via fashion me now

3. Applying for too many loans or credit cards.

Each time you apply for a loan or credit card, the lender pulls your credit report, resulting in a “hard inquiry.” Each hard inquiry dings your credit score. The effect is negligible if it doesn’t happen often, but avoid opening too many cards in a short time. Before applying for a card, consider your purchasing behaviors and travel loyalties, and only apply if the card will add value to your life. This guide will help you choose the perfect credit card for your unique lifestyle.

4. Canceling a credit card.

Have you ever been tempted to cancel an old credit card collecting dust in your wallet? Unless the card has an annual fee, closing it can actually hurt your credit score for a couple of reasons. First, it will increase your credit utilization (the ratio we talked about in number 2) because you’re removing a card that has no balance but has been boosting your personal credit limit. Second, it will shorten the length of your credit history. A longer history is preferable because it gives lenders more insight into your borrowing habits. If you cancel an old card, it will bring down the average age of your accounts and therefore, your credit score.

photo via stylight

5. Mistakes on your credit report.

When you borrow or repay money, your activity is reported to the three credit bureaus: Experian, Equifax, and TransUnion. Each bureau compiles a report, and that’s where your score comes from. If you follow these credit card rules, your report should be squeaky clean. But sometimes things get mixed up, and your credit report contains negative errors. Trust me, it happens to the best of us. It’s so important to review these reports every year, which you can do for free at AnnualCreditReport.com. For a full breakdown of all things credit-related (and to keep your credit score in tip-top shape), click over to ModMoney’s credit & debt page.

For a full breakdown of all things credit-related (and to keep your credit score in tip-top shape), click over to ModMoney’s credit & debt page.