10 Major Things That Can Kill Your Credit Score

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Disclaimer: The following is a sponsored post by Lexington Law. All opinions are 100% my own.

Did you know that to get a car or house loan, you’ll need to have credit?

And the higher credit you have, the more money you’ll save in interest rates.

This is why it’s important to make sure you aren’t doing any harm to your credit score.

Closing or not using your credit cards may seem harmless to your credit score, but this can actually cause a ding and cause a decrease in your credit score.

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There are so many things that can kill your credit score, but today we’re going over the 10 major ways your credit score can plummet and what you can do to fix it.

#1 Credit report errors

A credit report error is not as rare as you think.

In fact, 25% of people in the United States found errors in their credit reports according to the FTC.

Credit report errors can drastically lower your credit score, which can make it difficult to get a loan for a car or house.

The consultants at Lexington Law explain here:

Errors appear on credit reports for a variety of reasons. Estimates in the number of serious errors that can appear on credit reports range from 3% to 25%. There are a total of over 200 million credit reports, which means the lower end of the scale shows that they are at least 6 million inaccurate credit reports. Errors can consist of different customer files getting mixed up, creditors making an error and showing a debt for the wrong customer and inaccurate information related to identity theft.

If your credit score has taken a hit and you aren’t sure why I recommend getting assistance from experts who will act on your behalf for your personalized needs.

The Lexington Law team can give you a free credit report review and recommended personalized solutions that best fit your needs.

Contact them here for a free consultation.

#2 Applying for several credit cards

Applying and signing up for several credit cards at once can decrease your credit score due to various hard inquiries.

Not only that, creditors may view all of the credit card applications as desperation for credit.

Instead of applying for several credit cards at once, determine how many credit cards you need (if any) and come up with a financial plan. Space these applications for credit cards.

#3 Poor credit utilization rate

Credit utilization rate refers to the amount of credit you have already used divided by the total credit amount you have available.

Example #1: If you have a credit card with $10,000 available, and have used $1,000 of the credit, your credit utilization rate is 10%. This credit utilization rate is healthy, unlike the next example.

Example #2: If you have a credit card with $10,000 available, and have used $9,000 of the credit, your credit utilization rate is 90%. This credit utilization rate is not good and can hurt your credit score.

To ensure you keep a healthy credit utilization rate, make sure to pay off your credit cards in full every time you use them.

If you currently have a high credit utilization rate, create a financial plan to pay off your debt.

#4 Missing a payment

Paying off credit card bills late can be devastating to your credit score, especially if the bills stack up over time.

Even worse, you could end up with having the account charged off.

A charge-off refers to an individual missing too many payments, the account goes unpaid, and the creditor no longer allowing the credit card user to make additional charges to the credit card.

A large percentage of credit scores is the history you have with paying off bills on time.

To avoid missing a payment and being late on payments, schedule or autopay your bills in advance.

This ensures that bills will always be on time and leaves no room for forgetting to pay a bill.

According to Lexington Law, you still need to pay what you owe, try negotiating with your credit card issuer, and get the charge-off in writing.

#5 Closing a credit card

Closing out a credit card is a great idea if you’re trying to use fewer credit cards, however, there is a downside to this.

A large component of your credit score is how long the credit card has been open.

For example, if you were to close out the very first credit card you’ve ever opened, your new credit history could look substantially different and a lot shorter than it actually is.

#6 Debt settlement

Debt settlement is used when an individual is trying to reduce their debt and come to an agreement with their creditor to a reduced balance that will be seen as payment in full.

Debt settlement can be devastating to your credit score, and potentially bring it down 125 points.

Some see this as a better option over bankruptcy, but still should not be taken lightly.

#7 Not using your credit cards

It may sound silly, but credit cards that never get used can do damage to your credit score, especially if you have several that haven’t been used in a while.

This is why it’s important to figure out your financial plan.

Are you responsible with credit cards, and know that you won’t overspend with them?

Then open certain credit cards that fit your lifestyle.

However, if you’re an overspender, it may be wise to stick to 1 credit card (or none whatsoever) and work on building your credit without credit cards.

Once you’ve figured out your financial plan, keep track of your credit card spending and make sure you’re using your credit cards regularly.

#8 Hard Inquiries

There are 2 different types of credit inquiries; a hard inquiry and a soft inquiry.

A hard inquiry is when an authorized lender views your credit report, including your FICO scores.

Hard inquiries can alter your credit score because it indicates the individual is looking for credit.

A soft inquiry is different as it does not impact your credit score and only occurs when an individual is pulling their own credit, or a creditor is looking for pre-approval for an account.

#9 Bill sent to collections

If you miss a credit card payment, creditors will use third-party debt collectors to retrieve the payment from you.

This is extremely bad for your credit score as it shows that the creditor tried many times to get the payment from you but ended up having to hire a third-party collector to retrieve the payment from you.

To avoid missing payments, schedule your bill payments with autopay or create a reminder to pay off your bills.

For much needed added safety, Lex OnTrack can track and protect your identity, credit, and finances, which notifies changes and updates on your credit score.

#10 Bankruptcy

Before deciding to file for bankruptcy, it is wise to try out alternatives as bankruptcy can be devastating to your credit score.

Filing for bankruptcy also stays on your record for 7 years, which can make it very difficult to have a good credit score.

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This Post Has 2 Comments

  1. Alexis, I love the actionable tips to not plummet your credit score.
    There’s a lot of confusing (often contradictory) information out there about what hurts versus helps your credit but your article is great!

    I know credit scores don’t improve overnight, but people should get a head start right away or else it will take that much longer to fix.

    One thing that I recommend everyone focus on is keeping your utilization at or below 30%. Paying a credit card in full may not be feasible for a lot of us but it helps to have a more manageable targeted utilization rate.

    Obviously paying off your credit in full is better but anything up to a 30% utilization won’t completely tank your score.

    Thought that might be a helpful add-on for those of us who struggle getting enough cash together for the full payment.

    1. Alexis

      So many great tips!

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