To get credit, you often have to have good credit; it sounds like a catch-22. Basically, what it means is that in order to get loans or credit cards, especially at good interest rates, you have to show lenders that you’re responsible with credit. If you haven’t handled credit well, your credit score will reflect it.
FICO credit scores are the most widely used scores by lenders, and typically range from 300 to 850. They’re calculated from information in your credit report — including whether you’ve paid accounts on time, how much you owe, how long you’ve had credit, what types of credit you have and how many new accounts you have. Although there are five main factors used to figure your score, there are countless ways to screw it up.
“There’s a lot of things you could be doing wrong,” said credit coach Jeanne Kelly. “Most of the time, the people who come to me don’t even realize what they’ve done wrong.”
Here are 31 mistakes you could be making that are hurting your credit — and what you can do to repair the damage.
1. You Don’t Look at Your Credit Report
Kelly said that when she asks people when was the last time they looked at their credit report, most answer that it was when they were applying for a loan. Unfortunately, if there’s a mistake or factors that have pulled down your score, it’s almost too late in the game because it often takes time to fix the damage.
“That’s my No. 1 rule: Pull your report,” Kelly said. You should look at it at least once a year, because the information in your credit report determines your credit score — and checking your report won’t hurt your score. You can get a free copy of your credit report once a year from each of the three credit bureaus — Equifax, Experian and TransUnion — at AnnualCreditReport.com.
2. You Don’t Fix Credit Report Mistakes
If you see a mistake on your credit report, you have to take steps to fix it — and follow up to make sure it’s remedied, Kelly said. Otherwise, the error will remain on your report and might hurt your credit score.
Contact the credit bureau that issued the report that contains the mistake and ask the bureau to investigate it, Kelly said. Also send a letter to the credit issuer — such as the bank or credit card company — that provided the incorrect information to the credit bureau to let it know you’re disputing that information.
3. You Pay Bills Late
Your payment history is one of the biggest factors in your credit score, accounting for 35 percent of a FICO score. But if you’re only a day late paying a bill, your credit score won’t get dinged, said credit expert John Ulzheimer, formerly of FICO.
Lenders can’t report you as late until 30 days after a payment is due and hasn’t been paid, he said. At that point, though, your score can take a hit. The more accounts you have that are past due and the greater the amount owed, the greater the impact on your score, according to FICO.
So get caught up as quickly as possible, and set up payment reminders or automatic bill pay through your bank. You can also use a free mobile app, such as Mint Bills, to get reminders when bills are due and schedule payments.
4. You Rely Too Much on Automatic Bill Pay
Using automatic bill pay can help ensure your payments are made on time. However, that doesn’t mean you can set and forget payments. You have to monitor your accounts to make sure payments are actually being made, Ulzheimer said.
He set up automatic payment for his car insurance and even got a “thank you for your payment” confirmation message. But the payment wasn’t made, and he didn’t find out until he got a notice from his insurer that he hadn’t paid his premium. So check your bank account regularly to verify that your auto-payments are going through.
5. You Don’t Get Paper Statements
Getting paperless statements can be environmentally friendly and save you the trouble of filing or shredding stacks of bills. Unfortunately, it might also increase the chance that problems with an account or past due amounts go undetected.
For example, if you get a new email address and forget to update it for your credit card account, your bills might be sitting unpaid in an inbox you no longer check. Then your credit score falls if your payments are late. Paper statements, on the other hand, would reach you. And consumers tend to pay closer attention to paper statements than e-bills, Kelly said.
6. You Max Out Credit Cards
After payment history, the amount you owe is the second most important factor in your credit score, according to myFICO, the consumer division of FICO. Owing money doesn’t necessarily lower your score, but using a high percentage of your available credit can.
The percentage of credit you’re using on revolving accounts (such as a credit card) is referred to as your credit utilization ratio. So if you have a credit card with a $3,000 limit and have charged it to the max, you have a high credit utilization ratio. This can hurt your credit score and make lenders think you’re a high-risk borrower. Consumers with the best credits scores use 10 percent or less of their available credit, Kelly said.
7. You Open Several New Credit Cards at Once
Having credit cards can benefit your credit, Kelly said, because your score is based, in part, on how many types of credit you have and how well you manage those accounts. However, if you open several credit card accounts at once, it could hurt your credit score, she said.
Consumers with a large number of credit accounts can be considered higher risk. Plus, new accounts will lower your average account age. Even if you have a long history of managing credit, your score could drop. The impact will be much bigger, though, for people who haven’t had credit very long, according to myFICO.
8. You Have Too Many Credit Inquiries
Not only can opening several lines of credit in a short period of time impact your score, but so can applying for credit. Lenders will request your credit score or report when you apply for credit. “It’s an inquiry that will hit your score,” Kelly said.
Inquiries from credit card issuers tend to have a bigger impact than multiple inquiries in a short period of time from mortgage or auto lenders, which might be treated as a single inquiry and won’t put much of a dent in your score, according to myFico.
9. You Ask for a Higher Credit Limit
Even though your credit card issuer checked your credit when you applied for your card, it will likely check it again if you ask for a higher credit limit. This could be reported as a credit inquiry, which could affect your score, said Gerri Detweiler, a credit expert and head of market education for Nav, which helps business owners manage their credit.
This doesn’t mean you shouldn’t ask for a higher limit — especially if you’re responsible with credit and don’t plan to charge your card to the max. But you should think twice about doing so before applying for a mortgage or other loan.
10. You Have Too Few Credit Accounts
Credit scores factor in the number and mix of credit accounts you have, such as credit cards, mortgages and other loans. You don’t have to have all types, but it could hurt your score if you have too few types of accounts. In fact, people without credit cards can be seen as a higher risk than those who’ve managed credit cards well, according to myFICO.com.
That doesn’t mean you need to open several accounts you won’t use. But Kelly said you should have at least one credit card and keep it active by using it to pay utility bills, gas or other regular expenses — and then pay it in full each month. Also, consider getting a rewards card so you can earn cash back or points for free travel.
11. You Pay Off All Your Cards at Once
Paying down high balances can help improve your credit score. But if you pay down all of your balances at once, your score could take a hit. “This one is a bit tricky, but sometimes consumers will wind up with no activity on any card, and they see their scores go down,” Detweiler said.
FICO wants to see recent activity on revolving accounts, such as credit cards. If you don’t have any utilization, your score can be affected. The impact is small, though, Detweiler said.
12. You Use the Wrong Credit Card
You have to be careful about which card you use when making big purchases. For example, if you buy a $1,000 television using a retailer’s card with a $1,000 limit, “you’ve just maxed out your card,” Ulzheimer said. If you put it on another card with a $30,000 limit and low utilization, it wouldn’t impact your score, he said.
But by using all of the available credit on one card — especially if it’s your only card — your credit score could drop 50 points or more, Ulzheimer said. Make sure if you have a choice of cards that you use one that won’t be maxed out. And don’t apply for a retailer’s card just to get a discount if the limit on that card will be close to the amount you’re charging.
13. You Use Too Many Credit Cards
Although it’s important to be careful not to max out any of your cards, your efforts to avoid doing so might also backfire. “One of the silly strategies you may read about for controlling your score is to spread your balances evenly across multiple cards so no one account has a high utilization ratio,” Ulzheimer said. However, your overall utilization ratio won’t be any lower because you’re using the same percentage of your overall available credit.
You haven’t done anything to help your ratio, but you have polluted your credit report with multiple accounts with balances, Ulzheimer said. And you’ve hurt your score if you opened those accounts in a short period of time, because it shortens the average age of your account history and gives you multiple credit inquiries. You’re better off keeping your balance on the card you have and paying it down as quickly as possible.
14. You Open New Cards to Increase Your Available Credit
It might seem like a smart strategy if you have only one credit card with a high balance to open more cards to increase your available credit. Then you’d have a lower credit utilization ratio, which can help your credit score.
Unfortunately, this approach could have an negative impact on your score, according to myFICO. Opening several accounts will lower your average account age and could make you look like a credit risk.
15. You Get a New Cellphone
When you sign up for cellphone service — or cable or internet — the provider will likely check your credit, Detweiler said. The impact of this sort of credit inquiry will be minor — a drop of just a few points, she said.
On the other hand, if you apply for several new services at once, you could see your score drop more. So be wary of that, especially if you plan to apply for a loan. You might want to hold off on such purchases until after you’re approved for the loan.
16. You Consolidate Debt With a Balance Transfer
Consolidating high-interest credit card debt onto a card with a low balance-transfer rate might save you money. However, it could affect your score if it raises your credit utilization ratio, Detweiler said. “It may still be a smart move financially, but watch out if you are trying to get a mortgage or auto loan in the near future,” she said.
17. You Pay Down the Wrong Debt First
Paying down your balances can improve your credit score. How much of an improvement you see depends on which debt you pay.
For example, you won’t see much of an increase in your score if you pay off an auto loan, Kelly said. That’s because the credit utilization on installment loans, such as car loans, isn’t weighed as heavily in credit scoring as your utilization of revolving credit. So if you have a choice of which debt to tackle, “pay down credit cards first to boost your score,” Kelly said.
18. You Don’t Use Credit
You might be cheering if you’ve paid off your mortgage or other loans and buy things only with cash now. But if you apply for a mortgage to get a new retirement home, you might find that you can’t get a loan because you’ve stopped using credit, Kelly said. If you think you’ll be applying for credit at any point in the future, you need to continue using credit to show recent activity on your credit report.
19. You Close Unused Accounts
It might seem like a smart move to close credit cards once you pay them off so you won’t have too many accounts on your credit report. But, that could actually hurt your score. “Leave them open and eventually reap the benefit,” Ulzheimer said.
You’ll have more available credit by keeping the cards open, and your credit utilization ratio will be low if you don’t run up high balances on them again.
20. You Forget to Use Your Cards
If you decide not to close credit accounts to keep your credit utilization ratio low, don’t shove those cards in a drawer and never use them again. “If you use them, it can help your credit because it’s showing activity on an account,” Kelly said. She rotates the cards she uses to keep them all active and pays the balances to avoid racking up interest.
21. You Authorize Someone Else to Use Your Card
When you add authorized users to your credit card, you are responsible for any charges they make, Detweiler said. So you could be stuck with a big bill to pay.
Even if they pay off their charges, your credit score could take a big hit if your credit utilization ratio shot up as a result of those charges, Detweiler said. So carefully consider whether you want to take this risk by authorizing someone else to use your card.
22. You Co-Sign for a Loan
When you co-sign a loan for someone who can’t get credit on his own, you’re actually applying for the loan, too, Ulzheimer said. The balance will appear on your credit report and will affect your credit utilization ratio. If the primary borrower doesn’t make payments, “you’ll be called on to pick up the slack,” Ulzheimer said. “Then it becomes a bloody disaster.”
The only way to get your name removed from the loan is to sell the asset and pay off the loan, he said. So avoid getting in this situation and having your credit or finances ruined by saying no to anyone who asks you to co-sign a loan.
23. You Let Debt Go to Collections
If you miss several credit card or other payments, your debt could be turned over to a collection agency. You might even have a debt in collection you’re unaware of, such as an old utility bill that wasn’t paid when you moved. If that collection account is reported, your credit score could tumble.
“I have seen it drop in a credit score 75 points for one collection,” Kelly said. A collection account will stay on your report for seven years, even if you pay it off.
So if you do get a letter from a collection agency for a debt you owe, try to pay what you owe as soon as possible so that it’s less likely to be reported. And check your credit report to make sure you don’t have any debts in collection that need to be paid.
24. Your Forget to Pay a Medical Bill
Sometimes a medical bill slips through the cracks and is reported to collections before you even know it wasn’t paid, Detweiler said. A collection account can drop an otherwise strong credit score. “One consumer saw hers drop over 100 points with a single medical collection,” Detweiler said.
If you get a collections notice for a bill you do owe, call the agency immediately to pay your bill and ask that the late payment not be reported to the credit bureaus.
25. You Think a Divorce Decree Eliminates Your Debt
You might reach an agreement with your ex-spouse in your divorce settlement that he or she is supposed to pay off joint account balances. However, if your name is still on the account and it doesn’t get paid, your credit score could take a hit. “As far as your credit, that divorce decree removes nothing,” Kelly said.
During a divorce, pull your credit report, highlight any joint credit accounts and, if possible, remove your name from the ones that your spouse has agreed to pay, Kelly said. Otherwise, continue to check joint accounts to make sure your ex is paying bills on time.
26. You Have a Public Record on Your Credit Report
A small claims court judgment against you or a tax lien could show up on your credit report and remain there for up to 10 years, according to myFICO. As a result, your credit score could fall. Ideally, if you owe someone money, you should try to reach a settlement outside of court so it doesn’t become a matter of public record, according to myFICO.
27. You File for Bankruptcy
Your credit score will drop significantly if you file for bankruptcy — 100 points or more, according to myFICO. Chapter 7 and 11 bankruptcies can stay on a credit report for up to 10 years.
If you do file for bankruptcy, you should check your credit report to make sure that accounts included in the bankruptcy show a balance of zero. Keep track of when you filed so you know when to expect the bankruptcy to fall off your report.
28. You Don’t Re-Establish Credit After a Bankruptcy
Choosing to avoid credit after a bankruptcy can backfire. “When you do nothing after a bankruptcy, the credit score stays low,” Kelly said. Instead, get a secured credit card — which will have a credit limit based on an amount you deposit with the credit issuer — to rebuild healthy credit, she said.
29. Not Educating Yourself on Credit
“The more you learn about credit reporting, the better you’ll be at it,” Kelly said. It’s important to read as much as you can about credit scores and handling credit responsibly so that you can improve your own credit.
“Credit is such a huge part of your finances,” she said. “You could be wasting thousands of dollars a year because of your credit being damaged.”
30. You Don’t Call Your Creditors If You Can’t Pay Your Bills
It’s one thing to forget to pay a bill on time — it’s a much bigger problem if you’re missing payments because you can’t make ends meet.
If you can’t afford to make your monthly debt payments, call your creditors to see if you can negotiate a plan with smaller payments. This could help you avoid missing payments altogether and hurting your credit score.
31. You Won’t Get Help
The damage you’ve done to your credit might be too much for you to repair on your own. If you don’t get help, you might find yourself in serious financial trouble.
A certified credit counselor can help you help you manage your credit better and explore your options for debt repayment. You can find a National Foundation for Credit Counseling certified counselor in your area at NFCC.org.
From GoBankingRates.com: 31 ways to screw up your credit