5 Actions That Can Hurt Your Credit Score

July 8, 2021

A good credit score can mean better lending opportunities, but there are many unexpected ways you may be unknowingly lowering your credit score. Here are five.
1. Canceling credit cards
Hold on to credit cards, even if you’ve paid them off. Canceling a card can lower your credit score because it reduces the total amount of credit you have available to use, raising your credit usage ratio. A credit usage ratio is one of the factors considered when your credit score is determined, and if it is too high, it can hurt your score. Using less than 30% of your available credit is a good rule to follow.
2. Transferring balances 
Transferring all your card balances to one credit card may not benefit your credit score. This will result in a higher balance, which may cause you to reach — or even surpass — your credit limit for the card. This can decrease your credit score.
3. Not having credit diversity
One factor used to determine your credit score is your overall credit mix. Having both revolving credit, such as credit cards, and installment credit, such as a car loan, can help improve your score. However, you should not open additional credit cards or take out loans just to diversify; only do so if it makes sense for your financial situation and your budget.
4. Missing payments
Failing to make a payment may hurt your credit score. Before you miss a payment, contact your creditor to discuss your situation and see if they can work out a payment plan with you. Taking this step can prevent negative effects on your accounts and credit score due to missed payments.
5.  New credit
Nearly every time you apply for credit the lender runs a hard inquiry on your credit report, a compilation of your credit history. Hard inquiries occur when there's the potential for new debt, and they may temporarily lower your credit score until you demonstrate you are managing the debt responsibly. According to FICO®, a specific brand of credit score (FICO® score) used by lenders when determining a credit applicant's creditworthiness, each new hard inquiry can lower your credit score up to five points. If there are multiple hard inquiries over a short period of time, it could lower your score even more.
Maintaining a good credit score can allow you to receive more favorable loan rates, saving you money. Take some time to make sure you are making good financial decisions to work toward a higher credit score or to maintain it.

Tags: Credit Cards, Money Management, Savings