Building a good credit score takes time, diligence and sometimes even sacrifice. But tearing up your score – well, unfortunately, you could do that in a single day.
Yes, it doesn’t take much to move your score from one credit to another. Luckily for you, the most credit-damaging mistakes aren’t exactly sneaky, and with a little foresight, you can avoid them. For the sake of your credit score, here are five bad things you definitely want to avoid.
1. Close your oldest credit card
From time to time, you might want to declutter your wallet by closing accounts and cutting those cards to shreds. While it may give you peace of mind, closing old credit cards could negatively impact your credit score.
Credit history, which measures the average age of your account, is 15% of your total credit score. So if you’re going to cut credit cards, close new accounts, but keep old ones open. Even if you don’t use these cards often, their age helps your score.
2. Asking for too many credit cards at once
Another easy way to ruin your credit score is to withdraw too many credit cards at once.
Now, your intentions may be pure: you may be trying to capitalize on lucrative welcome bonuses. But when the credit bureaus see that you’re applying for a credit card or a loan, they may think you’re heading into tough financial times. As a result, they will lower your credit score as a warning to lenders.
Applying for one or two credit cards a year won’t hurt your score. But applying for more than three or four in a year could start hurting your score.
3. Maximize your cards
A large part of your credit score (30%) measures what is called credit utilization. Your credit usage is the amount of credit you use on all your credit cards compared to the total amount of credit you have been granted.
To maintain your high score, it’s best to maintain a credit utilization of 30% or less, although less than 10% will give you the maximum.
For example, if you have $10,000 of available credit, you would never want to withdraw more than $3,000. Going over $3,000 will begin to stress your credit score. Go over $5,000 (or 50%), and you really start seeing a reduction in score.
4. Missed payments
For credit card companies, late payments are serious business. Making a payment long after its due date will have a major impact on the “payment history” component of your credit score, which accounts for 35% of your overall score. Worse still, a missed payment can stay on your file for up to six years.
That said, many credit card companies will give you time to make a missed payment before reporting it to the credit card bureaus. You usually have 30 days to make a payment once it’s deemed overdue, although some credit card companies may give you more time. If you don’t make a payment during this grace period, your score will be severely affected, not to mention that you will pay late fees and interest charges.
5. File the balance sheet
The big whopper of the pack, filing for bankruptcy can easily shave a hundred points off your score. Although bankruptcy may seem inevitable, you should exhaust all other options – debt settlement, credit counseling, even negotiating with lenders – before accepting it.