When it comes to keeping your credit score in good shape, it’s important to exercise healthy financial habits to increase your chances of approval for personal loans, credit cards, and mortgages. It’s also helpful to know what can negatively impact your credit score, like making a late payment and closing a credit card, so you can avoid doing those things. If you’re looking to get your credit score on the right track, read on to learn about four things that can hurt your credit score.
1. Late payments
Just one missed payment on your credit cards and household expenses can lead to a decrease in your credit score. Credit card issuers typically report late payments to all three credit bureaus after a payment is over 60 days late. Missed payments after 30 days can impact your score as well. The negative impact of a late payment can stay on your credit report for up to seven years.
It’s always wise to pay your bills on time. One way to stay consistent with your monthly payments is to set up autopay so you can set it and forget it. If you have the funds available, using autopay will ensure your bills get paid on time, even if it slips your mind.
2. Closing a credit card
Paying off your credit card is a great feeling. It may feel so good that you’d be tempted to close the account altogether to seal the deal. But closing a credit card can hurt your credit score in a big way.
A closed credit card account will impact your debt-to-credit ratio and affect the number of credit accounts you have on your credit report. It will also shorten the length of your credit history. Creditors and banks want to see that you have an established credit history and handle your debt well. So, keeping your paid-off credit card accounts open can be a good thing.
3. High credit utilization
Your credit utilization is the amount of your available credit you’re using compared to how much is available to you. So, if your credit card limit is $2,000 and you’ve already used $1,800, you have a high credit utilization. This can bring down your credit score significantly and may signal to lenders that you’re a risky borrower.
A good rule of thumb to use less than 30% of your available credit to maintain a good credit score. If you’re careful about how much you spend each month and consistently pay down your credit card bill, you’ll keep your credit utilization in good standing.
4. Hard credit inquiries
Hard credit inquiries show up on your credit report when a lender checks your credit history after you’ve applied for a new loan or another credit card. Hard inquiries can negatively affect your credit score for a short time. They usually remain on your report for two years and are removed after that. Avoid applying for too many loans or credit cards all at once to avoid a significant impact to your credit score.
The bottom line
Maintaining a good credit score is entirely doable if you avoid making late payments, high credit utilization, closing a credit card, and too many hard inquiries. Continuing to practice healthy spending habits and avoiding things that negatively impact your credit will improve your score and qualify you for loans and credit cards with better terms down the line.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
Name: Michael Bertini
Job Title: Consultant
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