Getting your credit score above that coveted 800 mark is a tough road. It takes a lot of hard work and dedication to slowly build your credit score into something you’re proud of. For anyone not looking to obtain an excellent credit score, allow me to offer you five easy ways to ensure your credit score is never anything to be proud of.
1. Applying for a lot of credit
What’s not to love about getting lots of discounts at the stores you shop at most? Gap offers you 20% off your purchase if you open one of its store credit cards. Kohl’s gives 15-30% off regularly if you shop with its credit card. Why not get them all?
Applying for a credit card results in a hard inquiry on your credit report. Each hard inquiry can negatively affect your credit score by a few points. But, the more cards you apply for, the more cumulative damage to your credit. And the further you get to a good credit score.
According to the Credit Karma credit score simulator, you can move a score of 676 down to 673 with just one new credit card with a $500 credit limit. Apply for a few piddly-limit score cards at a time, and you can quickly tank your score by 10 points or more!
2. Maxing out your credit cards
Maxing out one or more credit cards can lower your credit score. Called credit utilization, credit scores look at how much available credit you have. Credit scoring formulas evaluate credit utilization for each revolving account you have. They also consider your overall utilization.
You can run the numbers through the FICO credit score estimator. Say you’re in the 700-750 range with a total debt-to-credit ratio of about 20 percent. Bump your debt up to about 70-75 percent of your limit, and your score could fall as low as 665.
3. Making payments late
Late payments can have a significant effect on credit scores. Payment history is the most important factor in credit scoring formulas, including the FICO formula. Late payments generally stay on your credit report for seven years.
There is some good news. First, as a late payment ages, it affects your score less and less. A late payment two months ago will hurt your score more than a late payment five years ago, all other things being equal.
Second, the amount of the late payment also matters. And third, the length of the late payment is also important. A 30-day late payment will lower your score less than a 120-day late payment.
Finally, a late payment will affect your excellent credit score even more than a mid-range score. Equifax notes that a single 30-days-late payment could tank your 780 score by 90 to 110 points. So if your goal is to lower your already-good score, go ahead and let those payments lapse.
4. Closing Accounts
As counter-intuitive as it may sound, closing accounts can hurt your score in two ways. First, closing a revolving line of credit, like a credit card, will lower your credit card utilization. We’ve already discussed how this can hurt your score.
- How long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts
- How long specific credit accounts have been established
- How long it has been since you used certain accounts
So closing accounts can lower your score.
5. Missing payments completely
Late payments will hurt your score as we’ve already covered. Missing payments completely will hurt your score even more. Here’s where it’s important to understand that not all late payments are created equal.
The credit bureaus monitor how late a payment is. A 30-day late payment is bad, but not as bad as a 90-day late payment, for example. Miss the payment long enough, however, and the creditor will write off the debt.
A charge off, as it’s called, can seriously undermine your credit score. According to myFICO, a charge off “is considered a significant event with regard to your score and will likely have a severe negative impact.”
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Credit scores are important. Yet it is easy to let a few mistakes hurt your score. It’s as simple as not being cautious with your credit usage or forgetting to make a payment on time.
Actively monitor and keep track of your credit score. Be disciplined with your financial habits to have healthy credit. Making your payments on time, keeping your credit utilization low, and being generally responsible with your finances are all essential habits.
These habits could spell the difference between getting approved for a mortgage or not. Or they could spell the difference between paying reasonable interest on a necessary loan, or paying through the nose. So take steps today to keep your credit score in good condition, and you’ll reap the benefits for years to come.
Here are two great ways to get your credit score for free: