Your credit score is like a GPA for your personal finances. It takes all of your credit information — from credit cards and loans to debts and bankruptcies — and distills it down to a single number. Companies use your score to determine your eligibility and interest rate for loans, and prospective landlords and employers can even use it to evaluate your application.
Unfortunately, it’s all too easy to put a few black marks on your credit report accidentally, and some marks can have a serious negative impact on your financial reputation. Pay attention to these 9 ways that you can hurt your personal credit scores so you can avoid them and set yourself up well for the future.
1. Missing a Payment
Whether through forgetfulness or lack of funds, many of us have missed a credit card payment at some point in our lives. Fortunately, many credit card companies are willing to forgive a few mistakes if you’re willing to pay the debt as soon as possible. If it happens to you, talk to your credit card company about setting up automatic payments so that you won’t be late again.
2. Co-Signing Loans
It can be hard to say no when someone asks you to co-sign a loan with them, especially if that person is a close friend or family member. As generous as you think you’re being, however, that loan will remain on your credit report until it’s fully paid off. If the primary borrower misses a payment or the loan goes into default, then your credit score could take a serious hit.
3. Spending Lots of Money
A credit limit is just that — a limit on the amount of debt you can go into using your credit cards. Maxing out your credit cards doesn’t just mean that you’ll have problems paying them off, however. If you’re currently using more than 30 percent of the total credit available to you, your credit score is also likely to be harmed.
4. Applying for Store Credit Cards
Sure, it can be tempting when a sales associate asks you if you want to save some money on your purchase by applying for the company’s credit card. However, applying for a new credit card opens a hard inquiry on your credit report, which will remain for two years and could lower your credit score by a few points during the first 12 months after the inquiry. What’s more, many store credit cards have high interest rates and very short introductory periods, which means that you’ll have a harder time paying off your purchases.
5. Closing Your Credit Cards
So maybe it wasn’t such a good idea to get that store credit card after all, but don’t go closing your account just yet. By canceling the card, you’ll have less credit available to you. This means that if you have any other debt or loans, your debt-to-credit ratio will be higher, which will bring down your scores. Especially avoid closing the oldest account on your credit report, as closing that account could decrease your credit age.
6. Filing for Bankruptcy
Whether it’s personal or business, bankruptcy is one of the worst things that can happen to your credit score. Chapter 7 and Chapter 13 bankruptcies both have the same numerical impact on your credit score, although lenders may see one type of bankruptcy in a more favorable light than the other. If you need to file for bankruptcy, use it as a foundation to begin improving your finances and credit score by keeping your debts low and making payments on time.
7. Not Checking Your Score
Your credit score might be hurt through no fault of your own due to errors, inaccuracies and even fraud. To avoid these issues, monitor your score at regular intervals. You can get a free credit report from each of the three major credit bureaus — Experian, TransUnion and Equifax — once a year, so you have no excuse not to check your score at least once every four months. (You can also get your personal and business credit scores for free from Nav.)
8. Only Relying on Personal Credit
When you’re just starting out as an entrepreneur, you might want to rely on your personal funds and credit cards in order to get up and running. However, doing so won’t help you establish healthy credit for your business. Additionally, if your business goes into debt and you can’t make your payments, your personal credit scores will take a hit. Companies typically use credit much more than consumers do, and growing your business will be difficult without access to a strong business credit history.
9. Falling for Scams
Beware of unsolicited phone calls and emails that ask you for your personal financial information, such as credit card numbers or Social Security numbers. Providing this information to scammers could make you a victim of identity theft and seriously harm your credit score. If you’re suspicious about a recent message, contact the company yourself to see if the contact was legitimate.
Unfortunately, there’s no quick fix for a credit score that’s lower than you’d like. Boosting your score takes time and patience by responsibly paying off your debts when they’re due, keeping an eye on your debt usage, and monitoring your scores and reports.