Your credit score is a crucial factor that impacts several things from loan approvals to interest rates and even job opportunities. A strong credit score can open doors to financial stability, while a low score can make life much harder. Unfortunately, many people unknowingly make mistakes that harm their credit.
7 Common Mistakes That Can Harm Your Credit Score
1. Missing or Making Late Payments
Why It Hurts: Payment history accounts for about 35% of your credit score. Even a single late payment can significantly drop your score and remain on your credit report for up to seven years.
How to Avoid It: Set up automatic payments or calendar reminders to ensure you never miss a due date. If you do miss a payment, make it as soon as possible, as some lenders have grace periods before reporting late payments to credit bureaus.
2. Maxing Out Your Credit Cards
Why It Hurts: Your credit utilization ratio—the amount of credit you’re using compared to your total available credit—makes up about 30% of your score. A high utilization rate signals financial distress to lenders.
How to Avoid It: Keep your credit utilization below 30%, and ideally below 10%, to maintain a healthy score. If possible, pay off your balance in full each month or make multiple payments throughout the billing cycle to keep utilization low.
3. Closing Old Credit Accounts
Why It Hurts: The length of your credit history makes up 15% of your score. Closing an old account shortens your credit history and reduces your total available credit, which can increase your utilization rate.
How to Avoid It: Unless a card carries high fees, keep older accounts open and occasionally use them to maintain their activity. If you must close an account, prioritize newer accounts over older ones.
4. Applying for Too Much Credit at Once
Why It Hurts: Each time you apply for credit, the lender performs a hard inquiry, which can slightly lower your score. Multiple applications within a short period may signal financial instability to creditors.
How to Avoid It: Only apply for credit when necessary. If you’re shopping for a loan (such as a mortgage or auto loan), try to do so within a short time frame (usually 14–45 days), as multiple inquiries of the same type are often treated as a single inquiry.
5. Ignoring Your Credit Report
Why It Hurts: Errors or fraudulent activity on your credit report can damage your score without you even realizing it. Many people only check their credit when applying for a loan, missing opportunities to correct inaccuracies.
How to Avoid It: Check your credit report at least once a year from all three major credit bureaus (Experian, Equifax, and TransUnion). You can access a free report at AnnualCreditReport.com. If you find any errors, dispute them immediately.
6. Co-Signing Loans Without Understanding the Risks
Why It Hurts: When you co-sign a loan, you are equally responsible for the debt. If the primary borrower fails to make payments, your credit score will suffer.
How to Avoid It: Only co-sign for someone you trust completely and be prepared to take over the payments if necessary. Monitor the loan to ensure payments are made on time.
7. Not Having a Diverse Credit Mix
Why It Hurts: Your credit mix—how many different types of credit you have—affects 10% of your score. Having only one type of credit (e.g., only credit cards) may limit your score potential.
How to Avoid It: If possible, diversify your credit by having a mix of credit cards, installment loans (such as auto or personal loans), and mortgages. Only take on new credit if you can manage it responsibly.
Start Maintaining Good Credit Today
Your credit score is one of your most valuable financial assets. Avoiding these seven common mistakes can help you maintain a strong score and secure better financial opportunities. By staying on top of payments, managing credit utilization, keeping old accounts open, being cautious with applications, monitoring your report, being mindful of co-signing, and maintaining a diverse credit mix, you can build and maintain excellent credit health.
