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4 Unforced Errors That Can Hurt Your Credit Score

Americans have come a long way in squaring up, knowledge-wise, with their credit scores, but there’s still work to be done, financial experts say.

Case in point—the Consumer Federation of America’s 7th Annual Credit Score Quiz survey revealed that the percentage of survey respondents who knew that non-credit service providers, such as cell phone companies and utility companies, look at our credit scores dropped. In last year’s survey, 53% of respondents understood this, and in 2017 that number dropped to 44%.

That’s just the tip of a potentially financially lethal iceberg as too many Americans continue to make money moves that have the potential to do heavy damage to their credit scores. Want to learn how to improve your credit score? Read this.

“I look at people’s credit scores all day and try and help them improve their scores,” says Jennifer Beeston, vice president of mortgage lending at Guaranteed Rate Mortgage, in Santa Rosa, CA. “I see mistakes and negative issues all the time.”

Beeston and other financial experts say unforced credit errors are easily avoided, which makes the issue all the more frustrating. They point to the following personal financial moves that lead directly to a lower credit score.

1. Cosigning a Loan

Often people don’t realize when they co-sign for a house or a car and the person they’ve co-signed for stops paying, the debt will be on their credit report. “I advise that if you cosign for someone, they provide you proof every month that they are making the payments so that if they slip you can step in so your credit is not damaged,” says Beeston. “Remember, by cosigning you are agreeing to step in if they miss payments.” Want to learn more about the risks of co-signing a loan? Read this.

2. Maxing Out Credit Cards

A big chunk of how your credit is scored depends on how much credit you are utilizing, says Beeston. “Ideally you want to utilize 30% or less of your available credit,” she notes. “For example, if your credit card has a 10,000 limit never have more than $3,000 on that card.” Want to learn more about large credit card purchases and credit utilization rates? Read here.

3. Paying Bills Late

This one is a no-brainer (or should be), says Jacob Lunduski, a credit card analyst at Credit Card Insider. Yet too many people see their credit scores sink for procrastinating on bill payments. “People severely damage their credit scores when they don’t pay their bills on time,” Lunduski says. “Late payments, collections, charge-offs, judgments, bankruptcies and other negative payment history hurts your scores the most.” Payment history and amounts owed make up the two biggest factors that affect your credit score, he adds. “FICO (the most widely used credit score model) counts those two categories as 65% of your score, whereas VantageScore counts those two as 60%.”

4. Shutting Down Credit Cards

“One of the most common credit mistakes I see people make is closing old accounts,” says Megan Robinson, a personal financial specialist at Goodbye to Broke, LLC, in Blacksburg, VA. “Closing an account that’s no longer in use, such as a credit card you’ve paid off, decreases both your available credit and the average age of your credit accounts. This affects both your amounts owed and length of credit history, which make up 30% and 15% of your FICO score, respectively.” Robinson advises that instead of closing the account altogether, it’s usually better to stop using the card. “Either cut it up or put it away somewhere safe—and check up on the account periodically,” she states.

Avoiding unforced errors like the ones cited above can work wonders for sagging credit score accounts. Keep those errors—and their fixes—in mind as you work on improving your credit score.