Your credit score, which is a three-digit number, is a financial metric that determines your ability to secure loans, low-interest rates, and rental agreements. Some employers also ask for your credit score as part of your job application. But, many people unknowingly put their credit scores at risk due to avoidable mistakes, as we see in these 21 reasons why your credit score might be in danger/
Late Payments
One of the biggest factors affecting your credit score is your payment history. Missing payments on the likes of credit card agreements or energy bills can have a significant negative impact, even if you’re just a few days late.
High Credit Utilization Ratio
Using more than 30% of your available credit limit can indicate financial trouble, whether it is constantly using your credit card to top up your wages or regularly overspending. Lenders will often increase your available credit without you asking, which can tempt people to use their cards for large purchases.
Ignoring Credit Card Balances
Even small balances left unpaid on multiple cards can add up and negatively impact your credit score, so it’s important to close down any unused credit accounts. You can quickly run a credit report through your bank or a dedicated credit checking service so that you can see all open balances.
Frequent Credit Inquiries
Applying for multiple credit accounts in a short period results in hard inquiries, which can lower your score.If you have been turned down for one credit application you should wait for three months before applying for another.
Closing Old Credit Accounts
Closing long-standing credit accounts can reduce your credit history length, which is a crucial factor in determining your score. Closing an old account reduces your total available credit, which can increase your credit utilization ratio.
Having Only One Type of Credit
A mix of credit types (credit cards, auto loans, mortgages) demonstrates your ability to manage different kinds of debt responsibly, boosting your overall credit score. If you’re nervous about having too many accounts open, you can opt for smaller loans such as a cell phone contract and small credit card limit.
Defaulting on Loans
Failure to pay loans on time can severely damage your credit score and remain on your report for years. Repeatedly missing loan payments may result in the lender sending your debt to a collection agency, which will further damage your credit score
Ignoring Your Credit Report
Not checking your credit report for errors can lead to inaccurate reporting that drags down your score. If you notice any errors, such as a missed payment log or an incorrect address, you should raise a dispute immediately so it can be removed from your file.
Co-Signing for Someone Else’s Loan
When a friend or family member asks you to co-sign on a loan, your immediate reaction may be that you do what you can to help them, But, if the person fails to make payments, your credit score could be affected.
Maxing Out Credit Cards
A maxed-out credit card suggests that you’re financial unstable as it increases credit utilization, which impacts your score negatively and reduces confidence in lenders. It’s best to keep your credit to a minimum by reaching for your debit card where possible and not just paying back the minimal repayment each month.
Not Using Credit at All
You may think that not using ant credit will mean you have a great credit score, but that’s not the case. Having no credit history or not using credit accounts can make it difficult for lenders to assess your creditworthiness.
Bankruptcy
Bankruptcy is a legal process that indicates you’re unable to repay your debts and is a major red flag for lenders and will drastically lower your credit score.Filing for bankruptcy can stay on your credit report for up to 10 years and significantly damage your score.
Having Too Many Credit Accounts
While having different types of credit can be beneficial, opening too many accounts quickly can be a red flag for lenders. You should space out your credit applications, even if you’re successful as it could show that you’re relying on credit.
Using Only One Credit Card
Relying too much on a single credit card instead of spreading usage across multiple accounts can increase your utilization rate. But, while it’s recommended that you spread your credit among multiple cards, try not to max out each card as this can impact your score.
Allowing Accounts to Go to Collections
Unpaid bills that get sent to collections agencies will significantly harm your credit score and can take years to recover from. If you’re struggling to make your monthly payments, speak to your providers who may be able to set up a payment plan.
Making Only Minimum Payments
Paying only the minimum balance on your credit cards can keep your debt levels high and negatively impact your credit utilization ratio.Having a high balance can also be an issue if interest rates rise and you can’t make the repayments.
Fraudulent Activity on Your Account
Identity theft and fraud can lead to unauthorized transactions that impact your credit score if not addressed promptly. It’s good practice to check both your bank account and your credit report regularly so you can report any issues.
Failing to Pay Utility Bills
Some utility companies report missed payments to credit bureaus, which can have an impact on your credit score. If you’re facing financial difficulty and cannot pay your utility bills, speak to your provider to see what support they can offer you.
Not Updating Personal Information
Incorrect details, such as outdated addresses, can lead to missed bills and late payments, potentially harming your score. Don’t put off changing your personal details as you may forget and have a nasty surprise on your credit report.
Ignoring Student Loans
Failing to make student loan payments can have long-term negative effects on your credit, so it’s important to keep up with payments. If you’re worried about your repayments you should speak to your loan advisor to set up a reasonable repayment plan.
Applying for Payday Loans
High-interest payday loans are often viewed negatively by lenders and can impact your credit score if not repaid. Payday loan companies often hide the small print on loan agreements, surprising borrowers with high interest rates and charges for late payments.
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