Most of us know that our credit score plays a significant role in our financial life. We also know how to build a good credit score.
But are you aware of those things that can kill your credit score?
Here are some ways you are hurting your valuable credit score.
1. If you make late payments or not pay at all
Remember, 35% of your credit score is based on your payment history.
If you always make late payments, then it will be on your credit history which can hurt your credit score. Also not paying the credit card bills can affect your score negatively.
If you don't make payments for 6 months or more, your accounts may get charged off and your score will suffer significant damage.
Thus, it is imperative to pay the entire credit card bill on time every month.
2. Using the debit cards to rent a car
Some car rental services accept debit card payment method. Once you use your debit card to make the payment, a hard inquiry will be added in your credit report, which can ding your credit score by a few points or remain on your credit report for 2 years.
According to the credit reporting agencies’ clause, they will pull the consumer's credit report if they use a debit card to pay.
3. If your account goes to the collection agency
If you don't pay off your credit card bills, the creditors may appoint debt collectors to collect the payment from you. The creditors can send your accounts to them before or after charging them off. This will get updated on your credit report accordingly and will drop your score significantly.
4. Freezing credit cards for a long time or closing old accounts
If you don't use your credit cards for a long time, the credit card issuer can close your account due to zero activity. This will be bad for your credit utilization ratio. Also, closing old credit card account is not a wise idea as it will certainly decrease the length of your credit history which can hurt your score.
5. Considering credit card debt settlement
Choosing debt settlement method to pay off the credit card debts can hurt your credit score.
Because in this process, creditors will get less amount; they accept that the debtor is unable to pay them the total amount. So, you need to pay less money than you owe. Thus, it is considered to be creditor’s loss and your gain. Therefore, it can hurt your credit score.
6. Filing bankruptcy
If you file bankruptcy to get rid of your debts, your credit score will drop significantly. Most of the credits will not consider you as a responsible credit card user and can deny to give you further lines of credit. Once you file bankruptcy to pay off your debts, it will stay on your credit report for 7-10 years which can drop your score by about 120-130 points depending on your present score.
7. Applying for too many credit lines or loans
Credit inquiries can affect your credit score. Making too many credit or loan applications within a short time can drop your credit score. However, if too many credit or loan applications take place within 45 days, it will be considered as 1 credit inquiry. Following this condition will not hurt your credit score much.
8. Having no debt at all
Living debt free is good; but not accumulating debt altogether will not let you build credit fast. Having no credit is as bad as having a bad score. It is important to have a line of credit and use it responsibly.
Lee Gimpel, co-creator of The Good Credit Game has said, " Building a good credit score comes from a responsible pattern of using credit — and a long history of years is better than a short history of a few weeks or months".
Lastly, understanding exactly what is hurting your credit score is important but difficult. Remember, even small things can have a bad effect on your score. Thus, it is important to review your credit report from time to time. By doing so, you can check whether or not there is any mistake. Sometimes wrong listing or error can affect your credit score badly. So, dispute the error with the three major credit bureaus as soon as you find any mistake in your credit report. Doing so, you will have an accurate credit report which will help you raise your score.