Factors That Damage Your Credit Score

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You know how to get your credit scores for free, but you may not know the different factors that can damage your credit score. This information is at least as valuable as getting your credit scores free because if you don't know what can hurt your credit score, even free credit scores won't do you much good.

Here are some factors that can damage your credit score:

  • Maxed-out credit cards
    Maxing out your credit cards is a huge red flag to the credit bureaus and lenders because, from their perspective, you've dug a large and expensive hole of debt. This drastically increases your risk of defaulting on these lines of credit in their view, and it definitely damages your credit scores.

  • Bad debt-to-credit ratio
    Directly related to maxed-out credit cards, your debt-to-credit ratio measures your total balance from all of your lines of credit against your overall credit limit. The more of your available credit limit you use or the higher your debt load, the lower your credit score will be. Try to keep the ratio on each line of credit at 50 percent or less.

  • Home foreclosures
    Having your home foreclosed means that, for one reason or another, you've been unable to meet your obligations on what is probably your largest credit line. Foreclosures are among the biggest of red flags to creditors.

  • Paying late
    When you pay your bills represents 35 percent (the single largest factor) of how the credit bureaus calculate your credit scores. Paying your bills on time every time can do wonders for your credit scores. Conversely, paying your bills late can inflict serious damages on your credit scores. This, more than anything, illustrates the importance of paying your bills on time.

  • Blowing off your bills entirely
    Every one of us is tempted now and then to blow everything off and live on a deserted island with no worries except for high tide and sunblock. Very few of us do it, but if you do, you'd better be prepared for a tsunami of unhappy lenders and a long peeling-back of burnt-to-a-crisp credit scores for up to seven years. (And this metaphor abuse doesn't even come close to the financial wrath you'll face.)

  • Collection notices
    Collection notices are a creditor's last chance to collect on what you owe them. It's the equivalent of them throwing up their hands in disgust and indicates that they're so desperate to get something — anything — from your account that they've contacted a collection agency so they can get at least a percentage back. This is very bad for credit score; very bad.

  • Bankruptcy
    Bankruptcies are horrible for anyone's credit scores. They are proof-positive that you've accumulated a lot of debt but are unable to arrange with your lenders to pay it back. Although it can be necessary, a bankruptcy will remain on your credit reports for ten years for any and all credit issuers to see — and they won't look kindly on it.

  • Closing old accounts
    Why not close the account of an old retail or bank credit card that you haven't used in ages? You may want to think twice about doing so, because even though you don't use it, that card can still help your debt-to-credit ratio by increasing your available credit limit.

Getting your credit scores for free is very helpful for managing your credit, but unless you know what works for and against your credit scores, they won't do you a lot of good in the long run. When you want to establish a good credit history and good credit scores that can save you money, credit scores for free are helpful, but they're only one part of your financial picture. If you can avoid these and other factors that damage your credit scores, they'll start working for you and saving you money.


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