Reader Question: What Damages Your Credit Score The Most?

Reader Phillip writes: “In this economy, I am concerned about getting a loan for a car and a house because of tighter lending restrictions being put out by lenders. If I am trying to build up my credit score, what kinds of things should I be doing to avoid damaging my score?

That’s a great question Phillip, and one that I am sure many people are asking themselves right now. There are actually all sorts of reasons to keep your credit score as high as possible, ranging from loans (like you asked about) to even getting approved to rent an apartment! Lower credit scores take away your ability to not only borrow money but can also keep you from getting a job. So it’s very, very important to keep your score in the range that most people are looking for, which is above 700. The lower you are than that, the more of a risk you are seen to potential lenders. With all of that out of the way, let’s talk about what action could hurt your credit score the most, which is…

Missing payments or always making them late.

This is the number one no-no when it comes to your credit score. Sure, there are many other factors that can negatively affect your score, but this one does the most damage. If you continually miss or make late payments, your credit score will take a real nose-dive. A full 35% of your score is based on credit history! No one is going to lend you money or let you move into an apartment if you rarely or never make your payments on time…or at all. If you cannot make the payments on the debt you already carry, who is going to want to give you even more? Not many people, other than maybe loan sharks and payday loan companies. The lesson here when it comes to keeping your credit score up? Pay your bills on time, even if it is only the minimum amounts due. Not doing so can really do incredible damage to your score. A few other things you want to keep in mind as well include:

  • Keep your existing accounts open and current.
  • Buy something once in a while on every card you have, and then pay it off.
  • Do not close your oldest accounts, as they demonstrate the length of your credit history.
  • If you carry debt, keep your debt to available credit ratio well below 50%.
  • Don’t open too many new accounts in too short a time.

Hope that helps a little Phillip, and good luck with that credit score Readers, have any more advice for Phillip? If so, please help him out in the comments!

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Comments (5)

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  1. Kate says:

    What great advice. I think this tip you gave is especially important and often overlooked: “Buy something once in a while on every card you have, and then pay it off.” I have to say, I was unaware that a full 35% of your score is based on your credit history. What an amazing example of The Power of Small, an idea that is explained in a business book I read recently of the same name. I always knew it was important to pay your bills on time and so I always have, but I was clueless as to just how important! One quick question though about another one of your tips– could you elaborate on this one “Keep your existing accounts open and current.” What do you mean by keep it current? Thanks!

  2. david says:

    “Current” is basically just a word meaning “paid on time and active”. 🙂

  3. I’m curious to see how much (if any) my credit score rebounds next month now that I’m caught up on a loan that was something on the order of 8 months behind…

  4. mike says:

    I pay my bills as soon as they come in.

  5. The answer to that was a whole 8 points, by the way…