Your credit score is like a financial report card. It follows you throughout your life, impacting everything from getting approved for a credit card to securing a mortgage. You probably know that missing loan payments or maxing out your credit card limits can hurt your credit score. As it turns out, there are other factors that might be working against you too.
Let’s explore both the obvious and the not-so-obvious things that can cause your credit score to drop, and if it does, how you can recover quickly. We’ll also look at why partnering with a certified, nonprofit credit counselor might be your best bet if things get out of hand.
What are some obvious credit score killers?
For starters, let’s go over those well-known actions (or inactions) that can take a toll on your credit score. We’ve discussed these in other CredEvolv blogs, but we can never talk about them too much. You can never be reminded about them too often, either!
- Missed or late payments. This one’s a no-brainer. Payment history makes up a whopping 35% of your credit score, so even one missed or late payment can cause your score to dip. Whether it’s a credit card, mortgage, or even a utility bill, consistently paying on time is the best way to maintain a good credit score and establish responsible money-management habits.
- Maxing out your credit cards. Your credit utilization ratio – the amount of credit you’re using compared to your credit limit – accounts for about 30% of your credit score. If you’re consistently pushing your cards to their limits or carrying high balances, it sends a message to lenders that you might be overextended financially, which can lower your score.
- Closing old credit accounts. It might seem smart to close a credit card account you’re not using. Believe it or not, this can actually hurt your score. Closing an account reduces your available credit and can increase your credit utilization ratio. Plus, older accounts contribute positively to your credit history. Closing them can shorten the average age of your accounts, which is another factor in your score.
- Applying for too much new credit at once. Every time you apply for new credit, the lender performs a “hard inquiry” on your credit report. Too many hard inquiries in a short period of time can be a red flag to lenders. This suggests you might be desperate for credit or struggling financially, which can lower your score.
Too many hard inquiries in a short period of time can be a red flag to lenders.
What are some not-so-obvious credit score killers?
Now, let’s dive into a few of the factors that could be dragging down your credit score without you even realizing it.
- Not using credit at all. It’s true: not borrowing money can hurt your score. If you don’t have any credit accounts or rarely use the ones you have, there’s not much information for the credit bureaus to use to paint your financial picture. Without a history of credit usage, lenders can’t assess how responsible you are with credit, leading to a lower score.
- Paying off a loan early. While doing so might seem like a responsible move, it can cause a dip in your score. That’s because closing an installment loan can reduce the diversity of your credit mix, which makes up 10% of your score. However, this is usually a minor and temporary drop, and the overall impact of being debt-free is positive.
- Having only one type of credit. Expanding on the previous point, a diverse credit portfolio shows lenders you can handle different types of credit responsibly. If you only have credit cards but no installment loans (like a car loan or mortgage), it could hurt your score. Lenders like to see a mix of revolving credit (credit cards) and installment credit.
- Co-signing a loan. While this can be a generous gesture, it comes with financial risks. If the primary borrower misses a payment or defaults on the loan entirely, it affects your credit score just as much as theirs. As a co-signer, you take on equal responsibility for paying back the debt. Any negative actions will be reflected on your credit report.
How can I boost my credit score quickly?
We’ve covered what can hurt your credit score. Now, let’s talk about how to help it. Here are some quick tips for making improvements in your credit score:
- Make payments on time, every time. This is the most effective way to improve your credit score every month. Set up automatic payments or reminders to ensure you never miss a due date. If you can only make the minimum payment, do it. That’s much better than missing it altogether.
- Reduce your credit card balances. Work on paying down high credit card balances to lower your credit utilization ratio. Aim to keep your total balances below 30% of your combined credit limit. As it is in golf, the lower, the better.
- Check your credit report for errors. Mistakes on your credit report can drag down your score unfairly. Get a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) and dispute any inaccuracies you find.
- Limit new credit applications. Try to minimize the number of times you apply for new credit, especially within a short timeframe. Each application results in a hard inquiry, which can temporarily lower your score.
Why work with a certified, nonprofit credit counselor?
If your credit issues have spiraled out of control, it can be overwhelming to try to fix them on your own. This is where connecting with a certified, nonprofit credit counselor on the CredEvolv platform can make a huge difference with:
- Expert guidance. Think twice before DIYing your credit score fixes or working with a traditional credit repair company that may not be legal, ethical, or compliant. The certified credit counselors we partner with at CredEvolv are trained professionals. They can help you understand your credit report, identify the factors hurting your score, develop a personalized action plan to improve it, and implement that plan on your behalf.
- Debt management plans. If you’re struggling with high levels of debt, a credit counselor on the CredEvolv platform can help you manage it. And it won’t be a one-size-fits-all solution either. It will be tailored to the specifics of your current situation and future goals.
- Budgeting assistance. The credit counselor you connect with through CredEvolv can work with you to create a realistic budget that helps you manage your finances, avoid new debt, and stay on track with your credit improvement efforts.
- Objective help with no profit motive. Because they are nonprofit, CredEvolv counselor partners are primarily focused on helping you improve your financial situation. Their advice comes with your best interests in mind, not theirs.
Final thoughts on the obvious and not-so-obvious culprits of a lower credit score (and how to bounce back!)
Understanding the factors that impact your credit score – both the glaringly apparent and the subtle – is a huge first step toward financial health. By taking steps to address the issues dragging down your score – and by partnering with a certified, nonprofit credit counselor on the CredEvolv platform when you need to – you can put yourself on the path to better credit and a brighter financial future.
Remember, it’s never too late to start working on your credit. With knowledge, discipline, and the right help, you may be able to achieve your ideal credit score faster than you might think!