How you use a credit card influences whether you have a good credit score or a bad credit score. Using a credit card the right way – keeping a low balance and paying your credit card on time – will build your credit score over time. On the other hand, using a credit card the wrong way will damage your credit score for several years. Here are some credit card actions that will hurt your credit score.
1. Paying your credit card late.
Your payment history has the most significant impact on your credit score. To be exact, it makes up 35% of your credit score. Timely payments help build a positive credit score. Late payments will bring your credit score down.
The more delinquent your credit card becomes, the more it hurts your credit score. A single 30-day late payment won’t hurt your credit score as much as a 90-day late payment. Late payments continue to affect your credit score for seven years, as long they’re included on your credit report. They hurt your credit score less over time as long as you add more positive payment history to your credit report. After seven years, they won’t hurt your credit score at all.
2. Letting your credit card get charged-off.
A credit card gets charged off after 180 days of delinquent payments. Charged-off credit cards are one of the most devastating things that can happen to your credit score. Charge-offs are more difficult to recover from than a single late payment.
3. Having a high or maxed out credit card balance.
Your level of credit card debt is another important factor for your credit score. It’s 30% of your score. Your level of debt compares your credit card balances to your credit limit. The higher your balances are, the more your credit score hurts.
As your credit card balances grow beyond 30% of your credit limit, your credit score will begin to drop. A maxed out credit card can cost hundreds of credit score points, especially if you have a high credit score to begin with.
The good news is that you can recover credit score points lost from a high or maxed out credit card balance by paying the credit card balance below 10% of your credit limit.
4. Applying for too many credit cards at once.
Each time you make an application for credit, an inquiry is placed on your credit report. Inquiries make up 10% of your credit score and can cost 70 to 80 points if you have a credit score in the 700s or 800s. The more credit cards you apply for, the more your credit score will hurt.
When you’re on the market for a new credit card, avoid applying for several credit cards at once. Instead, compare credit card offers and choose one credit card to apply for.
If you’re denied for a credit card, wait before applying for another one. The credit card issuer will send a letter telling you the reasons you were denied. You can use this as an opportunity to repair your credit and improve your chances at getting approved for your next credit card.
5. Opening a new credit card.
Your age of credit is 15% of your credit score. The credit scoring calculation uses the average age of all your credit card accounts. Anytime you open a new account, even a credit card, your average credit age will drop. Opening just one new credit card won’t devastate your credit score. However, the more new credit cards you open, the more your credit score will fall. So, open only one new credit card at a time.
6. Not having a credit card at all.
You can build your credit score without having a credit card, but you’ll be missing out on some credit score points. Ten percent of your credit score considers your mix of credit. That part of the credit score calculation is checking to see if you have experience with different types of credit – both credit cards and loans. Having a credit card and a loan can help you build a better credit score.
7. Closing a credit card
Closing a credit card is more likely to hurt your credit score than to help it. If you close a credit card with a balance, your credit score is going to drop because it looks like you’ve maxed out your credit card. That’s because credit issuers typically report a $0 credit limit on a closed credit card.
Even if the credit card has a $0 balance, closing it could still hurt your credit score depending on the balances on all your other credit cards. When the credit score calculation considers your level of debt, it looks at each credit card individually, then at your total credit cards and credit limits (credit utilization). When you close a credit card, it can drive up your total credit utilization and hurt your credit score.
It’s widely reported that closing an old credit card will hurt your credit score in terms of credit utilization, but that’s not true immediately. The credit bureau will continue to report an account closed in good standing for up to 10 years. It’s only after that point that the credit card will drop off your credit report and potentially hurt your credit score.
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