6 Things That Will Damage Your Credit Score
For many people, a credit score is a mysterious and daunting number that says a lot about you, without really disclosing how it makes those judgments and determinations. And without any warning or understanding, your credit score can drop, leaving you frustrated and confused as to how it happened. And it usually happens at the worst times. You can be taken by surprise when you are trying to finance a car or a house- or having your credit checked for an employment opportunity (yes, that can happen.) So if you are wondering what factors would contribute to your credit score dropping, keep reading for some insight into what might have happened.
1. You missed a payment.
Missing a payment can have a significant impact on your credit score. One late payment may not totally sink your score, but several missed payments can. The number of late payments and the total accumulated late days will also have an impact on how severe the credit hit you will take is.
2. You applied for credit.
When a company runs a hard credit inquiry, there is the possibility that your credit will take a small hit. Soft inquiries, however, should not have an impact on your overall score.
3. Fraud.
There are times when fraudulent accounts may appear on your credit report without your knowledge. These fraudulent accounts are usually collections or derogatory (because why would a thief care about helping you keep good credit?) and will contribute to a lower score. If you are not regularly scanning your credit report, you should be. Many people only find out about fraud when they apply for purchase (like a home or a car) and get denied. The longer fraudulent activity goes on, the more opportunity it has to advance and get more problematic.
4. Collections account.
If you owe money to a company and don’t pay it back by their collection terms, it is possible to have a collection account appear on your credit report. When this happens, it causes your score to drop. If you have more than one credit collection, this can have an even more intense impact on your credit scores downward spiral. Even when you pay off a collections account, you can expect to see that derogatory mark, and credit score affect, for some time.
5. Balance increase or revolving debt is too high.
If your account shows a balance increase that throws your debt utilization ratio (the amount of debt carried in relation to the amount of credit available) in the wrong direction, this can change your credit score for the worse. Inversely, if you pay down your revolving debt and free up more available credit, this should increase your score. You can check out free credit simulators to see how much of an effect these scenarios may have on your credit.
6. Closed account.
Whether you closed your account or a credit issuer made the decision to close your account for you (which is sometimes due to long periods of inactivity, missed payments, or other missed payments on your credit profile), this can ding your credit score temporarily. A closed account alone won’t affect your credit long term, however, the reason for the closure may.
This is by no means an exhaustive list of the different factors that could damage your credit score, but it is a good start to understanding some of the factors that could cause you to take a hit. If you are looking to finance a purchase in the near-ish future, steer clear of these activities and situations to help raise your score and increase the likelihood of a better rate and terms.