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.

Related posts:

1. How to Improve a Bad Credit Score
2. How Credit Cards Impact Your Credit Score

Banks aren’t the only businesses that use your credit score. Insurance companies use a version of your credit score to determine your insurance rate. Utility companies use your credit score to decide whether you should pay a security deposit. Some landlords even check your credit score to determine whether your rental application should be approved.

Credit Score Basics

Credit scores range from 300 to 850 with higher credit scores being better. The average credit score is 680. If your credit score is below that, then you have a bad credit score and won’t qualify for the best rates on loans. If your credit score is below 600, you may not be approved for loans and credit cards at all.

Your credit score is based solely on the information in your credit report. So, if you want to know what’s bringing your credit score down, you should check your credit report.

Your credit score is based on five key factors:

1. payment history, 35% of your score
2. level of debt, 30% of your score
3. age of credit history, 15%
4. types of credit accounts, 10%
5. recent applications for credit, 10%

Ways to Improve a Bad Credit Score

Fortunately, a bad credit score doesn’t have to haunt you forever. There are some things you can do to improve a bad credit score.

Dispute Inaccurate Credit Report Information

One of the easiest ways to raise your credit score is to dispute inaccurate information from your credit report. Review your credit report for accounts that don’t belong to you and inaccurately reported payment statuses. There are some errors you might overlook that can hurt your credit score:

• Open accounts that have been reported as closed.
• Credit limits reported lower than they really are or not reported at all.
• Negative information that’s more than seven years old (or 10 years for bankruptcy).
• Accounts being reported as unpaid and delinquent that were included in bankruptcy.

Your name may be misspelled and your address and employer information may be out of date, but this information doesn’t impact your credit score. So you don’t have to dispute it if it’s wrong.

Pay Your Bills On Time

Your payment history has the biggest impact on your credit score, so paying your bills on time is important. No matter how many other late payments are on your credit report, from this point forward always pay your accounts on time. The positive payment history will help improve your bad credit score.

Getting rid of delinquent accounts can improve your credit score dramatically. If you have accounts that are 30, 60, or approaching 90 days late, bring them current before your credit score nosedives. Once a credit card account passes 90 days late, it hurts your credit score as badly as if it had been charged off.

Next, take care of accounts that are 90+ days late, charged off, or that have been sent to a collection agency.

Pay Off Serious Delinquencies

If you have a serious delinquency like a deficiency judgment from a repossession or foreclosure, a lawsuit judgment, student loan default, or an unpaid tax lien pay it off. The longer it stays on your credit report, the longer it will impact your credit score. These items fall off your credit report after seven years, so if the account is old (6+ years) you might wait until it falls off rather than pay it and reactivate the account.

Keep Account Balances Low

Keep your credit card balances low. The higher your credit card balances, the lower your credit score will be. You should always keep your credit card balances within 10% to 20% of your credit limit. That means a balance of $100 to $200 on a credit card with a $1,000 credit limit. Anything above that will bring your credit score down.

Pay down accounts that have high balances. If you have credit cards with balances that are above 20% of the credit limit, work on paying those down. Start with the accounts that are closest to the credit limit because these are hurting your credit score the worst.

Use Your Credit Cards

Keep your credit cards active. When you stop using your credit cards, your credit card issuer stops updating your credit report and that account is no longer included in your credit score. That’s not ideal when it’s an account in good standing, no late payments, and a low credit card balance. Use your credit cards periodically to keep them active on your credit report and to keep your credit card issuer from closing them.

If you don’t have a credit card, consider opening a secured credit card which requires you to pay a deposit against your credit limit. Make sure the card reports to the credit bureaus and doesn’t list the account as a secured credit card. This will help you build a positive payment history that will improve your credit score.

Related posts:

1. 7 Credit Card Actions That Hurt Your Credit Score
2. How Credit Cards Impact Your Credit Score

Why do you want to close your credit card?

Far too many people close credit cards out of anger, like they’re trying to get back at the credit card issuer for one thing or another. It doesn’t work. Closing a credit card is always more likely to hurt you than your credit card company.

More sensible reasons for closing a credit card account are because you have too many credit cards to manage, your credit card issuer just increased your interest rate, or the credit card issuer just added a new credit card fee you can’t avoid.

Pay off the credit card balance.

Leaving a balance on a closed credit card will always hurt your credit score. That’s because 30% of your credit score is based on your level of debt, which compares your credit card balance to your credit score.

Closing a credit card with a balance raises your debt-to-credit ratio for that credit card to 100%, a move that could really hurt your credit score, especially since a credit utilization of 10% or less is ideal. Once your credit utilization rises past 30%, your credit score is severely impacted.

Once you’ve paid off your credit card, then it’s ok to close it. Avoid making new charges on the credit card, otherwise paying off the balance will be much harder.

Check your other credit cards.

Leave the credit card open if you don’t have any other credit cards. This will help boost your credit score since your mix of credit is 15% of your credit score. You need to have different types of credit accounts – both credit cards and loans – to get the best credit score.

You may need to leave this credit card open to balance out your overall credit utilization, the ratio of your total credit card balances to your total credit limits. If your other credit card balances are relatively high, losing available credit could drive up your credit utilization resulting in a blow to your credit score.

For example, let’s assume you have three credit cards (including the one you want to cancel) with total balances of $5,000 and total credit limit of $20,000. Your overall credit limit is 20%. If you close a credit card with a $10,000 credit limit and your total balances remain the same, your credit utilization will shoot up to 50% ($5,000/$10,000).

Closing a credit card account is about your total credit card portfolio, not just the one credit card you want to close.

When the coast is clear, make the call.

Once you’ve done the due diligence to make sure closing your credit card won’t hurt your credit score, call the number on the back of your credit card to let your card’s customer service know you want to close your account. Be prepared for them to try to convince you to keep your credit card open. They may even offer a lower interest rate or other incentive for keeping your credit card open. If you truly want to close your credit card, be firm and repeat that you’d like to close your credit card account.

Follow up in writing.

Even though you’ve let your card issuer know via telephone that you want to close your credit card, it’s a good idea to follow up in writing. A letter confirming that you requested your account to be closed will help clear up any possible future confusion about closing your credit card.

In your letter, make sure you include your name, address, and account number. It will also help to reference the date and time of your telephone call to close your account.

Sending your letter via certified mail or return receipt requested (or both) will help you prove the card issuer actually received your letter if the fact ever comes into question. Make sure you send the letter to the address specified for correspondence and not your regular payment mailing address.

Check your credit report.

Your credit report will confirm that your credit card account was closed as requested. It could take at least 30 days for your account to be closed and your credit report to be updated. The account should say “Closed” or “Closed at cardholder’s request.” It should not say “Closed at grantor’s request.” The listing itself won’t damage your credit score, but could be viewed negatively by businesses that check your credit report in the future.

If the account isn’t correct on your credit report, confirm with your ex-card issuer that the account was actually closed. You may not have given enough time for your credit report to be updated so wait and try again in another 30 days. If the account continues to be reported inaccurately, submit a credit report dispute and include a copy (not the original) of your letter as verification of your request to close the account.

Related posts:

1. 7 Credit Card Actions That Hurt Your Credit Score

Each consumer has several different credit scores. The credit score that’s most widely used by lenders is the FICO score. The FICO score was developed by FICO, which used to be called Fair Isaac. Then, you have a credit score from each of the three credit bureaus – Equifax, Experian, and TransUnion. Your credit score is based on information in your credit report – a document that includes information about your credit accounts.

Credit Score Factors

There are five key things that influence your credit score:

1. Your payment history is 35% of your credit score. How you pay your credit cards and other bills has the most impact on your credit score. Paying your bills on time will raise your credit score. Late credit card payments bring your credit score down.
2. Level of debt is 30% of your credit score. Your level of debt is measured using what’s known as your credit utilization ratio. The credit utilization ratio compares your total credit card balances to your total credit limits. The lower your ratio – meaning your credit card balances are low – the better.
3. Age of credit history is 15% of your credit score. The longer it’s been since you opened your first and last credit accounts, the better. A longer credit age shows that you have more experience with handling credit, something that makes you more likely to pay your bills on time.
4. Mix of credit is 10% of your credit score. This factor considers all the types of accounts you have. Having some open loans is good. Having loans and credit cards is better because it shows you’re able to manage different types of debt.
5. Your recent applications for credit are 10% of your credit score. Each time you make an application for credit, the creditor (or lender) must take a look at your credit history. These applications can bring down your credit score, especially if you make several in a short period of time.

Using Credit Cards to Get a Good Score

Credit cards are one of several types of accounts that will be factored into your credit score. The way you handle credit cards can factor into each of the five credit score factors we talked about above.

Pay on time

Paying your credit card bill on time will raise your credit score, while late payments will cause your credit score to decrease. If your credit card goes beyond 90 days late, your credit score will be severely damaged. Letting your credit card get charged-off (which happens after 180 days of nonpayment) is one of the worst things for your credit score. The late payments will continue to impact your credit score for seven years, but won’t hurt as much as time passes and you add more positive payment history.

Keep balances low

Keeping your credit card balances low is good for your credit score. High credit card balances lower your credit score. It’s best to keep your balances below 20% of your credit limit. On a credit card with a $1,000 credit limit, your balance should never exceed $200. Maxing out your credit card is detrimental to your credit score, but the effect on your credit score will lessen as you pay your balance down.

Open a credit card account

Opening your first credit card account sooner rather than later will help grow your credit age. The longer your oldest account is the better. Since credit age is calculated as an average age of your credit accounts, opening new accounts can lower your credit age. Closing old accounts can also lower your credit age, but only after about 10 years when they’re no longer included in your credit report.

Mix up credit cards and loans

Having a credit card and a loan will help improve your credit score in terms of your mix of credit. Keeping only credit cards or only loans will cause you to lose points in this area.

Only make a few new applications

Minimizing your credit card applications will keep your credit inquiries low and your credit score higher. The more credit card applications you put in, the more your credit score drops. Inquiries only affect your credit score for a year, so if you apply for a credit card this year, you can apply for another one next year without making a significant impact on your credit score.

Checking Your Credit Score

You can purchase your credit score from MyFICO.com or from Equifax.com and Experian.com. The TransUnion website TrueCredit.com doesn’t have a single credit score product that you can purchase, but you can receive a free credit score if you purchase a three-in-one credit report.

CreditKarma.com offers a free credit score based on information in your TransUnion credit report. Free credit scores from TransUnion do not require an additional purchase.

Related posts:

1. How to Improve a Bad Credit Score
2. 7 Credit Card Actions That Hurt Your Credit Score