Cash 1 Blog
Ouch! Here’s What Hurts Your Credit Score
Your credit score is a three-digit number that, in large part, determines your credit worthiness. Your credit score is based on information in your credit report. Depending on changes on your credit report, your credit score will go up or down. If your credit score falls, it will be related to a change on your credit report. Even if you have a good credit rating, i.e., a credit score of 700 or above, knowing what affects your credit score will help you improve or maintain it.
Do Not Make a Late Payment
Your payment history which makes up about 35% of your credit score and has the most significant impact on your credit score. If you have a payment that is more than 30 days late, your creditor may report it to the credit bureaus or credit reporting agencies (CRAs), and it is reflected in your credit score. Making a late payment could make your credit score take a plunge. The longer a credit card, mortgage loan, etc. amount goes unpaid, the more damaging the effect it has on your credit rating.
If you have a credit score of 720 or higher, one late payment could have a more significant negative impact on your credit score. If you are wondering what lowers your credit score 110 points, just a single missed mortgage loan payment can cause your credit score to plummet by more than 110 points, depending on what your credit score was before you miss the payment.
Car Rental Reservations
Using a debit card to make car rental reservations can hurt your credit score. This is because agencies can pull your credit report if you choose to confirm a reservation with a debit card to rent a car. That credit check causes a hard inquiry on your credit report. Each hard inquiry usually lowers your credit score by a few points and will remain on your credit report for two years.
A better option would be to confirm the reservation with your credit card to avoid the unnecessary hard inquiry and then settle the bill with your debit card.
Past-Due Rent Payments
Did you know that if you fail to pay the rent on time, then your landlord might report your delinquency to each of the three main credit bureaus? If you are struggling with your rent, meet with the landlord to arrange an alternative payment plan that you can commit to. That way, you can avoid your credit score from taking a plunge.
If you forget to return materials like books or DVDs to your local or any library that lets you borrow them, the library can assess a fee per day for each outstanding item. Once the account reaches a certain sum of money, an additional penalty can be tacked on, depending on the library. And the entire account can be forwarded to a collection agency, meaning your credit score could take a hit.
Outstanding Medical Bills
Unpaid or outstanding medical bills turn into medical collection accounts. According to the Federal Reserve, almost 1 in 6 credit reports contain a medical debt collection. Unpaid or outstanding medical bills represent nearly half of all reported debt collections in the U.S. A medical collection, or any collection account could potentially have an extremely damaging impact on your credit score.
If you receive a bill from the IRS for unpaid taxes or receive one from the local county tax collector for any property taxes, do not run away. If you fail to pay your taxes on time, the IRS or the local tax collector can file a lien and this will cause your credit score to dive.
Defaulting on a Loan
If you default on a recurring bill from a cell phone, utility bill or other recurring services provider, chances are you will receive several notices before services are terminated. If you continue to default on recurring bills, the service provider may send your account to a debt collection agency and report to credit reporting bureaus. Do not ignore correspondence from your services provider(s) or fail to settle outstanding bills, or else your credit score will take a hit.
Breached Gym Membership Contracts
If you signed up with a gym membership contract you are not using, do not just walk away. Violating the gym membership contract could cost you in the form of early termination penalties and hurts your credit score.
Unpaid Traffic Citations
Failing to pay parking tickets may lead the parking services or city that issued them to report your debts to a debt collection agency. Any collection account stays in your credit profile for seven years and could affect your ability to get a line of credit, such as personal loans in Nevada and mortgages. Your credit score will take a hard hit for unpaid traffic citations that are turned into a collection account.
Closing Credit Cards
Closing your old credit cards may seem like a good idea, especially if they are collecting dust. Having said that, closing your old credit cards, especially the oldest credit card, will decrease the average length of your credit history. The length of your credit history makes up 15% of your credit score. Closing a credit card also means losing a portion of your available credit. As a result, it increases your credit utilization ratio. And an increase in your credit utilization ratio and a decrease in your credit history will have a negative effect on your credit score. So, avoid closing your oldest credit card.
Too Many Credit Card Applications
New credit inquiries determine 10% of your FICO credit score, that is how you shop for credit. Whenever you apply for new credit like a loan or credit card, a hard inquiry is performed, and it will stay on your credit report for up to two years. Every hard inquiry can cause your credit score to dip by a few points. Making too many credit card applications, especially within a short period of time will have a negative effect on your FICO scores.
Too many credit card applications in a short time could suggest to the lenders that you are desperate for credit, reducing your chances of getting the credit cards.
Inadequate Mix of Credit
10% of your FICO credit score is based on the types of credit you use. Having a combination of different types of credit, such as credit cards, store credit cards, installment loans and mortgages will have a positive impact on your credit score. If you have an inadequate mix of credit accounts, it will hurt your credit score.
How many total credit accounts you have in each of these credit types also have an impact on your credit score. However, since this makes up a small portion of your total credit score, you probably will not worry if you do not have a mix of different types of credit accounts. So, do not open new accounts just to increase your mix of credit types since opening new accounts will cause your score to dip.
In-House Zero-Interest Financing
Going for in-house zero-interest financing option can adversely affect your credit score. For example, if you buy a new television using an in-house zero-interest financing offer from a retailer, they may open a store credit card in your name for the exact amount of the purchase. Then the store charges up the new account, maxing out the credit limit. Having a maxed-out store credit card on your credit report for even one month will have a negative effect on your credit score.
Your FICO credit score accounts for 30% of your credit utilization ratio. A maxed-out credit card uses 100% credit ratio, but FICO recommends that your credit utilization ratio should not be higher than 30% of your original credit limit. Besides, as you are applying for new credit, the retailer performs a hard inquiry that can hurt your credit score. Also, opening a new account lessens the average length of the age of your credit history.
Not Paying Credit Card Bills
If you do not pay credit card bills, it could have a significantly large negative impact on your credit score. Not paying credit card bills is much worse than paying late. If you miss a payment on one of your credit cards, you could see your credit score drop. Each month you miss a credit card payment, you will have the credit card account charged off. And your credit card provider or company will report this to the big three credit bureaus. As a result, your credit score will take a hit, and when you apply for a new credit card, lenders may view you as a risky applicant.
Having an Account Sent to Collections
Creditors often use third-party debt collectors to try to collect payment from you if you default on a credit card or loan, stop paying a recurring bill or fall behind on your non-credit payment. Also, creditors might send your account to collections before or after charging it off. Having an account sent to collections will almost certainly cause a significant drop in your credit score. Do not allow your credit account(s) to go into collections.
When it comes to what affects your credit score 720 or above the most, filing for bankruptcy will have the most significant impact on your credit score. Having said that, someone with a FICO score of 720 or above probably will not declare bankruptcy. However, the higher your starting credit score, the more points you will lose for filing bankruptcy. The lower your credit score, the less it costs you for filling bankruptcy. Regardless, declaring bankruptcy has the biggest impact on your credit score, and it will affect your ability to get any line of credit for several years.
Having Your Home Foreclosed
Falling behind on your mortgage loan payments will lead your lender to foreclose on your home. The higher your starting credit score, the more points you will lose for having your home foreclosed. If you have a bad credit score, the less it costs you. For example, a foreclosure will cost your credit score by more points if your score was 720 or above than if it was 680 or below.
Know What Lowers Your Credit Score
Knowing what changes can affect your credit score is critical to take the right steps to maintain, improve or build your credit score fast. Avoid tax liens, late payments, lawsuits, bankruptcies and foreclosures which result in lower credit score.
If you have you’ve made some credit mistakes and you’re looking for loan companies for bad credit, CASH 1 offers payday loans in Las Vegas and title loans in Nevada and Arizona. If you have any credit advice, feel free to drop some science in the comment section below!
Joseph Priebe takes pride in assisting audiences with his articles to help them make sound financial decisions.
With over ten years of experience writing financial content his goal at CASH 1 has always been creating engaging and easy-to-digest information for anyone searching for immediate or long-term monetary solutions.
When Joseph is not writing about personal finance, you can find him photographing the Southwest United States with his 4x5 Graflex Crown Graphic camera. He is based in Phoenix, Arizona.