Your credit scores are based on several factors, including your credit card balances, the amount of credit you have available, your payment history and the length of your credit history. You may not realize how some actions or mistakes can impact your credit scores.
Carrying High Balances or Using a High Percentage of Your Available Credit
Having high credit card balances can be problematic. You may struggle to cover your monthly payments and interest charges can cause the balances to keep growing.
A high balance can also cause you to have a high credit utilization ratio, or percentage of available credit you’re using. When that ratio creeps up, your credit scores can go down. You should aim to keep your credit utilization ratio below 30%. Transferring all your balances to one card may make it easier to handle your monthly payments and help you qualify for a lower interest rate, but it can also have a negative impact on your credit scores.
Closing an Account You Have Paid Off
When you pay off a credit card, you may feel so relieved to have a zero balance that you decide to close the account. That can be a mistake, however. Your remaining balances on other cards will remain the same, but closing the account you’ve paid off will reduce your total amount of available credit and cause your credit utilization ratio to rise.
The length of your credit history is an important factor used to determine credit scores. If the account you pay off is one that you’ve had for a long time, closing it can shorten the average age of your accounts and cause your credit scores to dip.
Making Late Payments
If you make a payment 30 or more days late, the company will report it to the credit bureaus and your scores can take a hit. This applies to credit card payments, loan payments, utility bills and other obligations.
Set up autopay or set reminders to make sure you don’t miss a payment. If you experience financial hardship and think you won’t be able to pay a bill on time, contact the company before you miss a payment. If you’re proactive, the business will be more likely to work with you.
Applying for New Credit
When you apply for a new credit card or loan, the company will conduct a hard inquiry to check your credit, which will cause your credit scores to fall a bit. That may not be a big deal, but applying for new credit with multiple companies in a short period of time can create problems.
Protect Your Credit
It’s important to know the factors that influence credit scores so you can avoid making these common mistakes. That will allow you to keep your credit in good shape so you can qualify for a loan or credit card when you need it most.
