The Ultimate List of Credit Score Mistakes
Working on your credit can feel like a minefield. One wrong move, one mistake and your score can drop dozens of points instantly.
And while some credit mistakes are easy to fix quickly, others could impact your score for years. You may be able to cut your credit card balances and see a credit score boost in 30 days, for example, but if you make a late payment or let a bill go to collections, it can be hard to convince a creditor to remove them from your credit report.
Consider this list your map — if you know how to manage your credit, you'll be able to avoid the landmines that could be waiting for you.
1. Missing a Loan Payment
Given payment history is generally considered the most important factor among credit scores, missing a single loan payment is one of the fastest ways to tank your credit. In fact, a single missed payment can cause a good credit score to fall b y 90 to 110 points, according to a study from FICO.
2. Carrying Too Much Credit Card Debt
Whether you're charging too many lunch outings or need to break your shopping habit, racking up a lot of credit card debt is not good for your credit.
"High utilization is the second most important factor in credit scores," Rod Griffin, Experian's director of public education, said. You want to aim to keep your collective credit card balances under 30% — ideally 10% — of your total credit limit for best scoring results.
3. Filling Your Wallet With Too Many Credit Cards
Griffin points out that this is relative based on individual credit histories and spending habits. But if you have a plethora of plastic in your wallet and each one is maxed out, you'll be doing a lot of damage to your credit.
4. Closing Credit Cards Too Soon
Tempted to close a card gathering dust in the dresser? Think twice: Closing a credit card with no balance while carrying others could hurt your credit utilization, as your total available credit limit(s) will decrease. And that's not all it will do to your credit. Your average age of credit helps determine your score, so closing the card means you'll lose any positive history associated with it.
5. Not Checking Your Credit Reports …
"You can't know what is in your credit report unless you look at it, and you won't know what you need to work on until you know what is in it," Griffin said. "Getting your credit report can help you identify potential identity theft, recognize anything that might be incorrect, and enable you to take action to protect yourself and have information updated. Getting your credit report lets you take control of the information and empowers you to be a more successful consumer."
6. … Or Only Checking One of Them
Not all lenders report to each major credit bureaus, so it's a good idea to pull all three reports, particularly if you plan on shopping for a new loan. There may be an error on one that isn't appearing on the others.
7. Not Notifying Creditors If You Change Your Name
"Notifying your creditors of a name change will help to ensure your credit report accurately reflects your identity," Griffin said. "In most cases, a name change update occurs automatically because you notify your existing lenders of the change or you open a new account using your new identity. Your new name will be added to your existing credit history so you will not lose access to credit when you need it."
8. Applying for Too Much Credit in a Short Period of Time
Each time you apply for a new line of credit, you'll prompt a hard inquiry on your credit. (Note: These are different from soft inquiries, like for promotional inquiries or checking your own credit scores, which don't have an impact on your scores.) Yes, it's a good idea to shop around when applying for new credit, like for a car loan or mortgage, but you don't want to go overboard. Doing so can cause your score to take a dive.
"Applying for a lot of credit in a short time is a sign of risk," Griffin said. "Each time you apply for credit, an inquiry is added to your credit history. Those inquiries represent potential new debt that doesn't yet show as an account on your credit report."
9. Taking Too Long to Comparison Shop for a Loan
Most major credit scoring models will actually group applications for similar loan types (think mortgage vs. auto loan vs. student loan) and count them as a single inquiry. But this rule only applies to applications filled out without a certain timeframe (typically 14-to-45 days, depending on the credit scoring model.) So, if you dilly-dally in your search, you risk incurring multiple inquiries anyway.
10. Not Having a Diverse Credit Profile
According to Griffin, having a variety of account types "helps show that you can manage credit well, regardless of the type." This can include a mixture of revolving accounts, like credit cards, and installment accounts, like a mortgage or student loans.
It's important to note that you should not go apply for different kinds of credit in hopes that it will help your credit, as it will likely do more harm than good. Instead, Griffin advises you "apply for credit as you need it and with a plan to repay it" and "the mix of credit types will take care of itself."
11. Not Disputing Mistakes on Your Credit Reports
"You should play an active role in managing your credit history," Griffin said. "By being part of the process you help ensure the information is accurate and that the credit report is a financial tool that works for you."
After you get your free reports, go over each item carefully and note any problems you find. From there, you'll want to file disputes to get these mistakes taken care of. You can read this guide for more on how to dispute any errors on your credit report.
12. Trying to Get a Perfect Credit Score
Trying to score that elusive 850 (the apex of most credit scoring models) is a noble goal — but it's also a bit unnecessary. You don't need the highest score possible to get the best rates on a loan. (Most creditors consider anything over 750 to be excellent credit.) And there are so many credit scores out there in use, a lender may not see perfection anyway. Moreover, if you don't know exactly what you're doing, you're as likely to hurt your credit score as to help it.
Instead of fixating on a single perfect score, focus on establishing good habit, like paying all your bills on time, keeping debt lows and adding new credit organically over time. (You can monitor your progress toward good credit by viewing two of your credit scores for free each month on Credit.com.)
13. Turning a Blind Eye to a Loan You Co-Signed for
When you co-sign a loan, you're doing someone a serious favor. But if your friend or relative falls behind on their payments, you'll be the one stuck holding the bag — meaning your credit will be on the line. So, it's a good idea to carefully consider co-signing before you go ahead and sign on that dotted line. And then it's extremely important to monitor whether the friend or family member you're helping out is making their payments and otherwise using the credit line responsibly.
14. Defaulting on Student Loans
If you default on federal student loans, you'll likely not only have to deal with debt collectors but also potential wage garnishment, loss of tax refunds and a major hit to your credit scores, making it difficult to do everything from renting an apartment and buying a car to getting a credit card or buying a home.
15. Tuning Out Collectors' Calls
You may think hiding from debt collectors will convince them to leave you alone. But chances are they won't, and your credit will suffer. A debt collection can appear on your credit report regardless of whether you respond, and the interest won't stop mounting just because you've gone AWOL — depending on the creditor and state law, the collector may be able to tack interest and collection costs onto your debt. Worse still, you could wind up being sued by the bill collector, who could enter a judgment against you. That's bad news for your bank account and for your wages, depending on state law.
16. Missing a Medical Debt
Medical debt doesn't just go away. Hospitals and medical centers have their own debt collectors . And just because they stop calling or hand off the bill to a collector, doesn't mean you're off the hook. A better course of action would be to call the hospital and try to negotiate the debt before it's sent to a collector. Many medical facilities and doctors have sliding payment scales.
17. Ignoring a Parking Ticket
Depending on where you live, even a small unpaid parking ticket can turn into a major headache. Some municipalities send the information on money owed to collection agencies — and those agencies can report that debt to the credit bureaus, which will damage your credit scores.
18. Not Returning a Video Rental
OK, so even though the hay days of Blockbuster have come to an end, this is still a credit score mistake haunting some Americans. If you're late returning a video rental or never returned it at all and then forgot about the bill, video rental companies have been known in the past for turning that debt over to collections, even for debts less than $10.
19. Keeping a Library Book
You may have forgotten you borrowed that dusty old Dostoevsky, but your librarian likely remembers the small crime — and if that bill gets sent to collection, your credit score will suffer the punishment.
20. Foregoing Your Phone Bill
A single late payment on your phone service likely won't be reported to the credit bureaus, but you don't want to make it a habit. If you leave your bills unpaid long enough and your cellphone provider sends your account to collections, that will certainly ding your credit.
You can find the rest of the ultimate list of credit score mistakes on Credit.com.
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