8 Ways You’re Hurting Your Credit Score Without Knowing It

The Credit score is an important aspect of your overall financial situation. This is also a determinant of how much you will spend on interest and expenses in your life. If the credit score is very good, or the FICO score is 740 or higher, it may help you obtain loans and credit cards at the best interest rate and terms, and any score lower than this score may cost you. So in this article, we will be talking about 8 ways you’re hurting your credit score without knowing it.

For example, a fair credit score of 580 to 669 will usually make you pay more for credit if you can get approval, the first time. On the other hand, a score of 579 or less means that you “are considered to have low credit risk and may be rejected”, myFICO.com points out.

Luckily, you do have control over your credit score and how it progresses with time. When you use your credit responsibly (paying bills on time, keeping debt to a minimum, etc.), your score may increase, but if you use your credit and finance recklessly, your score is easy to decline.

However, in some cases, there may be less obvious ways to affect your score. Here are some less common ways that you may unknowingly damage your credit score.

8 Ways You’re Hurting Your Credit Score Without Knowing It

1. Max out your credit card every month

For example, you pay your bills in advance every month and never forget any payment, but you can’t help accumulating a growing balance every month. This can be a huge problem for your credit because the amount you owe is related to the credit limits, i.e. credit utilization, considering 30% of your FICO score.

Is there anything wrong with that? According to the data of myFICO.com, the credit scoring formula see the borrower with increasing credit card limit as a potential risk. “That’s why it’s a good idea to keep your credit card balance low, rather than over expanding your credit utilization,” they reported.

What is the best utilization rule? ‘you should try to keep your credit balance below 25% to 30% of the limit to achieve the best results,’ said Experian of a credit-reporting agency. This means that if the total credit limit of all your credit cards is $10000, your debt should not exceed $2500 to $3000. If your balance is higher than your credit limit, you should fully expect your credit score to be impacted.

2. Close your old credit card account that you no longer use

The average length of your credit history is another factor affecting your credit, which accounts for a 15% role in your score. This is an important point to understand because closing old accounts that are not often used seems to be a good idea.

Also, note that closing your old account can reduce your available credit limit and improve your utilization in the process.

Alternatively, consider keeping open your old credit card account and keeping your credit card in a safe place. In this way, your account can increase your credit history and the average length of available credit, which can only help you get a credit score in the long term.

3. Not checking credit reports every year.

Nowadays, identity theft is quite common. Statistics show that a series of hacker strategies for consumers are on the rise. A 2020 Javelin strategy report shows that in 2019, “new account fraud” when someone opens an account with your private information increased to $16.9 billion in crime.

The appropriate way to know if you are a victim of identity theft or fraud is to check your credit report every year. If you don’t, you can easily become a victim of theft and can’t find it for months or even years. Luckily, From April 2022, you can check the credit reports of Experian, Equifax, and TransUnion credit reporting agencies once a week, and then use the AnnualCreditReport.com website once a year.

4. Not using credit cards because you “hate debt”

Dave Ramsey, a personal financial adviser, is notorious for telling consumers that they should never use credit cards or borrow money. His advice can definitely help you avoid long-term debt if you follow it. Unfortunately, if you really need to borrow money to buy a car or a mortgage to buy a house, you may regret your choice. Without a long credit history and an appropriate “credit mix”, you may not be able to obtain the financing you need when you really need it.

According to myFICO.com, “FICO ® scores takes into account the combination of credit card, retail account, installment loan, financing company account, and mortgage loan, and is adjusted to 10% of your score. This factor is not as important as your repayment history or how much debt you have, but it will still affect your score without you realizing it until it’s too late.

5. Opening new credit cards

Lured by the huge registration bonus brought by rewards and travel credit cards? There’s nothing wrong with using credit cards to pursue rewards, but you may get too many new things.

New credit accounts for 10% of your credit score, mainly because each time you put forward a new credit application, you will make a difficult query on your credit report. Too many new credits may lead to a temporary decline in your score, which may make it more difficult for you to obtain loans with the best future interest rates and loan conditions.

6. As co-signatory of others

Joint loans don’t necessarily sound like the death knell for your credit, but it’s easy if the people you bet don’t keep up with their closing time. Remember that when you make a joint loan, you are jointly responsible for repaying the debt. Even if the original borrower says they are paying on time, your credit score is vulnerable if they don’t take their responsibilities seriously.

Before you jointly apply for a loan, the Federal Trade Commission (FTC) recommends that if you have to repay the loan, make sure you can repay the loan. If you can’t do it and the other party of the loan doesn’t repay in time, your credit rating will be affected.

A Joint loan is another good reason to check credit reports regularly. You can also register for free credit monitoring services, such as credit sesame or credit karma. These services will monitor your credit for you, and you can even set up notifications to know immediately when you are overdue.

7. Play balance transfer game

Transferring the high-interest balance to a new credit card and extending the annual interest rate of 0% for a limited period of time can definitely help you save money and repay your debt faster, but if you get into the dilemma of transferring the balance from one card to another every year, you will pay the price.

Opening a new credit card will not only hurt your credit score but also improve your utilization rate if you transfer your balance and accumulate more debt with your old credit card.

In addition to affecting your credit score, please note that most balance transfer credit cards charge a balance transfer fee of 3% or 5% of your balance amount to manage transactions. So while these offers do save you interest, they are far from “free”

8. Forgot to pay the bill on time

If you think it’s no big deal to pay your credit card bill late once in a while, you’re very wrong. Trust it or not, your payment history is the most important factor in your FICO score, which has an impact of 35%. This means that one delayed payment may cause serious damage to your score, but it also means that multiple delayed payments may cause greater damage to your score.

The best thing you can do for your credit is to always pay your bills in advance or at least on time every month. If you don’t take the bill seriously and just pay the bill when you start, you are likely to regret it.

Bottom line

Don’t let the simple mistakes we outlined above hurt your credit score. On the contrary, treat your credit carefully, and you are likely to benefit from better loan interest rates and loan conditions for the rest of your life.

The most important things you can take include paying all bills in advance every month, keeping debt to a minimum, and avoiding opening or closing too many new cards. If you follow this advice, your credit score will never stop you from living the life you want.

We would love to hear about your ideas, suggestions, and questions regarding ways you are hurting your credit score without knowing it. So feel free to contact us.

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