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What Hurts Your Credit Score the Most
Just as many positive pieces of information can help establish credit, build it over time, and raise a credit score over several years, there are many negative items that can adversely impact your credit ratings and scores.
If, for example, you request a new credit card, or if you make a payment to a collections agency; if you have a number of late payments, a charge-off, active collections, or delinquency of any kind — then your credit score will not be optimal.
Information that can hurt your credit score can often be predicted without "pulling your score" — do any of the following apply to you?
- Do you "carry over" a credit card balance on a regular basis?
- Ever had problems getting insurance to cover medical expenses?
- Ever missed or been late on a payments because the bill never arrived?
- Have you ever cosigned on financing that may have been paid late or abandoned?
- Would you qualify for 0% APR on a credit card if you applied today?
- Has collections ever called to demand payment for unpaid bills?
Components that influence your credit, for better or worse...
- The largest factor is your payment history. On the negative side, late payments, accounts in collections, public records such as judgments or bankruptcies, and so forth can play a damaging role. On the positive side, responsible payment history demonstrates a low credit risk. A combination of negative and positive figures makes payment history account for nearly 35% of your credit score.
- The use of your revolving credit is also important. Revolving credit is short-term and varies from month to month. Credit cards are one example. If you carry a balance on one or more cards, your score may drop. How much your score goes up or down depends on your balance versus maximum limit. Using more than about one third of your maximum credit may lower your credit rating - and revolving credit accounts for about 30-35% of your credit score.
- Another factor is the length in years of your credit history. The longer you demonstrate responsible credit management, the higher your credit score. On the other hand, negative credit information can hurt your score for years, though older data is less damaging than recent activity. Many consumers are surprised when their credit score drops because they "did the right thing" and paid down an old, inactive debt. Credit history amounts to about 15% of your score.
- Also worth about 15% are the ways in which you use credit. If you have five credit cards extending $10,000 in credit total, this may lower or raise your score compared to financing a single $10,000 installment loan. Typically, higher credit scores demonstrate responsible used of multiple account types (i.e. both installment loans and revolving credit).
- Finally, "new credit" covers about 10% of your score. New accounts have not yet had time to prove responsibility and lightly damage a score per an "inquiry" made. Multiple new accounts can predict a financial risk crisis. Very large extensions of credit, like a home loan or new vehicle loan, can reduce your ability to get more credit in the short term.
Due to the interaction of the data above, and more, a credit score can be tricky to optimize and easy to damage. Negative historical credit data can greatly reduce your power to get a loan of any kind.
The good news is that damage to your credit score is not permanent, and if inaccurate or invalid, can be removed upon request. Veracity has helped tens of thousands of consumers determine what is damaging a score, and how to fix the problem.
Whether you are wondering if you should cancel an old credit card, need advice on handling a collections agency, or wish to optimize your credit score for a large purchase such as a home mortgage, Veracity has a personalized solution for you.
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