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

Examples of Credit Report Errors

Some credit report errors are harmless. For example, a misspelled name or out-of-date address are errors that won’t hurt your credit. Neither of these impacts your credit score, so trying to clear these errors from your credit report might be more trouble than it’s worth.

Other credit report errors can be worse. This includes things like:

• Credit limits being reported lower than they really are. Since part of your score is based on the ratio of your credit card balance to your credit limit, incorrectly reported credit limits can lower your credit score.
• Credit card payments reported late that were really on time. Late credit card payments are most damaging to your credit score.
• Credit card accounts that don’t belong to you. If the account has negative information like late payments or a high credit card balance, this is especially damaging.
• Debt collection accounts that don’t belong to you or that weren’t actually sent to a collection agency.
• Accounts continuing to be reported delinquent that were included in a bankruptcy.
• Any account reported unpaid that was actually paid.

How to Spot Credit Report Errors

You should check your credit report regularly. Otherwise, credit report errors will catch up with you at the most inconvenient time, like when you’re trying to get approved for a home or car loan. Your application process will have to wait until you’ve cleared the errors from your credit report.

You should be proactive about detecting credit report errors. Review your credit report periodically throughout the year, especially before you apply for a major loan.

You can check your credit report free for free by visiting AnnualCreditReport.com or by signing up for a promotional offer. Otherwise, you’ll have to purchase your credit report through the credit bureaus.

You should check all three of your credit reports from the major credit bureaus – Equifax, Experian, and TransUnion. That’s because your credit reports aren’t exactly alike. There may be accounts on one credit report that aren’t on the others.

Once you receive your credit report, review each detail about each account to spot errors. Use a highlighter or colored pen to highlight questionable items on your report.

Correcting Errors On Your Credit Report

A Federal law, the Fair Credit Reporting Act (FCRA), gives you the right to an accurate credit report. If you find errors on your credit report, you can use the credit report dispute process to remove inaccurate information from your credit report.

If you ordered your credit report online, you’ll be given the option to dispute credit report errors online. Each account on your credit report will have a button next to it giving you the option to dispute that account. Then, you’ll be given a few options as reasons for the dispute. For example, the account isn’t yours, the account was paid on time, etc.

You can also make a credit report dispute in writing. When you find a credit report error, write a letter to the credit bureaus indicating the error on your credit report and why it is an error. If you have proof of the error, like a cancelled check or copy of your bankruptcy discharge, you can include a copy of it to help your dispute. When you send your dispute letter and supporting documentation, include a copy of your credit report with the errors highlighted.

Send your credit report dispute letter is via certified mail with return receipt requested. This gives you proof that you sent the dispute and that the credit bureau actually received it.

Sample Credit Report Dispute Letter

Here is a sample credit report dispute letter you can modify and send to the credit bureau.

Date

Your Name
Your Address, City, State Zip Code

Credit Bureau
Address
City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute information in my credit report. I have attached a copy of the credit report with the disputed items highlighted.

This account is inaccurate because {give the reason the information is accurate}. I’m requesting the account be removed from my credit report as soon as possible.

Sincerely,

Your Name

Make sure you update the letter before sending it to the credit bureau so that it reflects the information you’re disputing and the result you want from the dispute. For example, if your credit limit is not reported correctly, you may simply want the account updated rather than deleted.

What Happens After the Dispute

Once you submit your credit report dispute, the credit bureau has 30 days to investigate your dispute and provide you with the results. If the credit bureau determines that you’re right and the credit report does contain an error, the error will be removed and you’ll be given a copy of your updated credit report.

On the other hand, if the credit bureau’s investigation doesn’t return in your favor, you’ll be given a reason why. You also have the opportunity to add a 100-word personal statement to your credit report explaining why the information is being disputed.

Related posts:

1. What to Do About Credit Card Billing Errors
2. How to Handle a Lost or Stolen Credit Card
3. 5 Reasons to Check Your Credit Report

What is a Credit History?

Your credit history is a record of how you’ve paid your credit cards, loans, and other bills. Your credit history is collected in your credit report and measured with your credit score. Most of your credit cards and loans will automatically be included on your credit report. Other bills like utility payments aren’t included in your credit report, but can be added if you become seriously delinquent and the account is sent to a collection agency.

How to Build a Good Credit History

You’re in control of your credit history. How you borrow and repay money will determine whether you have a good or bad credit history. Here are some things you should do to build a good credit history.

Open a Credit Card

To start building a good credit history, you need some type of credit account that you can use to start showing you know how to handle credit responsibly. If you’ve never had a credit card, start with the bank where you have a checking or savings account. You might also ask a parent to add you as an authorized user to one of their credit card accounts. Only be added to an account that is in good standing.

Retail stores are known to give credit cards to consumers who are just beginning to build a credit history, so you may start there if you can’t get a bank credit card.

A secured credit card is a final option. This is a credit card that requires you to pay a deposit to secure the credit limit for the credit card. A secured credit card is a good option if you’re just starting out with credit and can’t get any other credit card.

Note: Starting February 22, 2010, if you are under 21, you must show that you have income to pay your credit card bill or have a co-signer to get a credit card.

Pay Your Bills on Time

How you pay your bills has a significant impact on your credit history. Your credit score – the numeric version of your credit history – is mostly made up of your payment history. Late credit card and loan payments are included on your credit report for seven years. They will have a less significant impact as they get older, but potential creditors and lenders will still be able to see that you were once late on your credit card payments.

Late payments lead to some of the worst credit report listings – foreclosure, repossession, and student loan default. It often takes months of missed payments for any of these to happen, but once any of these is on your credit report, it can devastate your credit score.

Keep Credit Card Balances Low

The second most important part of your credit history is the amount of debt you carry. Lenders want to see that your credit card balances are low enough for you to pay off without trouble. So, as your credit card balances rise above 10% to 20% of your credit limit, it looks bad for your credit score.

Instead of charging high balances on your credit cards, keep your balances low (between 10% and 20% of your credit limit) to help build a good credit history.

Have Both Credit Cards and Loans

Showing that you have experience with different types of credit accounts will help you build a good credit history. Rather than having only credit cards or only loans, try to have some of both. Avoid opening accounts simply to try to get credit score points in this area. Instead, open accounts as you need them. For example, take out a loan when you prepare for college or a mortgage loan when you’re ready to purchase a house.

Apply for Credit Only When You Need It

A sign of creditworthiness is that you’re not taking on more credit than you can handle. One of the ways you demonstrate this is by keeping your credit card applications to a minimum. Each time you apply for a new credit card or loan, the bank has to check your credit report. These credit report inquiries affect your credit score for 12 months and stay on your credit report for 24 months. Within that period of time, only apply for one or two credit cards or loans to build a good credit history.

Leave Your Credit Cards Open

You need credit cards to help build your credit history. It’s rare that closing a credit card will do anything to build your credit history. Instead, it’s more common that a closed credit card will hurt your credit score, especially if you still have a balance on the credit card when you close it.

Slow and Steady Wins the Race

A good credit history won’t happen overnight. Instead, it takes years to build a solid credit history, so don’t rush. Use your credit card responsibly and the good credit history will come.

No related posts.

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.

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

Now, employers use it to decide whether to hire you or even to give you a promotion or raise. Landlords use your credit report to decide whether to rent to you. Even insurance companies use your credit report to set your insurance rates. It’s more important than ever that you know what’s on your credit report.

You have three credit reports – one from each of the national credit reporting agencies or credit bureaus – Equifax, Experian, and TransUnion. The credit bureaus maintain your credit report by updating it with information from businesses with whom you have a financial relationship.

The information on your credit report will fit into one of five categories: personal information, account history, public records, collection accounts, and credit inquiries.

Personal Information

The first section of your credit report includes information that helps identity you. This includes your name, current and previous addresses, date of birth, and your current and previous employers.

There may be several different spellings of your name. Some may include a middle initial. Some may not.

Your social security number may be included on your credit report. Typically, when you order your credit report, you can request that only the last four digits of your social security number appear on your credit report. This reduces the likelihood of your identity being stolen if your credit report is lost or stolen.

Account History

The account history section will make up most of your credit report. If you’ve had credit accounts for several years, your account history could be several pages long.

In the account history, there is a list of all your open credit and loan accounts and some that are closed. Each account will list:

• The date the account was opened
• The original loan amount or credit limit
• The current loan balance or credit card balance
• The highest loan balance or highest credit card balance
• The type of account, e.g. revolving, non-revolving
• The minimum payment on the account
• A complete payment history, including late payments from the last seven years.

Negative account information should only appear on your credit report for seven years. After that, it will no longer be reported.

Public Record

Hopefully, the public record section of your credit report of your credit report will be clear. This section lists information about serious delinquencies like bankruptcy, tax lien, foreclosure, repossession, or judgment. These are some of the worst entries that can appear on your credit report. Entries in the public record section of your credit report will remain there for seven to ten years.

Debt Collections

If you have accounts that have become seriously delinquent, they may be sent to a collection agency whose sole purpose is to get you to pay the debt. Collection accounts are also detrimental to your credit. When you have collection accounts on your credit report, it sends the message that you don’t pay your bills on time.

Any type of financial account can be sent to a collection agency and included on your credit report. Even an outstanding library fine of $5 can make its way onto your credit report. To keep debt collections from appearing on your credit report, pay all your bills on time.

Credit Inquiry

Each time a business checks your credit report, a record is made of that “inquiry.” All your credit report inquiries are listed in a separate section. There are two types of credit inquiries. First, soft inquiries are made when you check your own credit report, when businesses you already have a relationship with check your credit report, or when businesses check your credit report to send you a promotional offer.

The second type of credit report inquiry is a hard inquiry. Hard inquiries are made when you apply for credit.

Some inquiries may not show up on your credit report depending on who’s checking it. If you’re checking your credit report, you’ll see all inquiries both soft and hard. On the other hand, when you make an application for credit, only hard inquiries will appear on that version of your credit report.

Lenders typically like to see fewer credit inquiries. Too many inquiries could mean that you’re taking on more debt than you can handle or that you’re desperate for credit.

All Three Credit Reports Won’t Be the Same

The three credit bureaus collect data independently of each other. Your creditors and lenders may only report your account to one or two of the credit bureaus. The impact is that not all your accounts will appear on all your credit reports. So, when you view all three of your credit reports at the same time, you’ll see that one report contains information that the other reports do not.

You have the right to an accurate credit report. If you find errors on your credit report, you can submit a credit report dispute to have the inaccurate information removed from your credit report.

Related posts:

1. 5 Reasons to Check Your Credit Report
2. How to Handle Credit Report Errors
3. How to Get a Free Credit Report

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