On the surface, Americans do pretty well on the credit score front with an average score of about 714. That average score suggests that most people do a fairly good job of avoiding things that ding their credit score.
Of course, avoiding those things through good habits isn’t the same thing as understanding credit and what hurts your score. That lack of understanding can lead you down a path toward a bad credit score that will seem just as mysterious as your good score was when you had it.
If you want to keep your credit score healthy, you’ll want to avoid these credit mistakes.
The credit bureaus that issue your credit score put enormous weight on your bill payment history. In fact, it makes up about 35 percent of your total score.
While anyone can miss a payment here and there or pay a bill late occasionally, you want a bill payment history that runs as close to 100 percent as possible.
In other words, get your budget in order and pay your bills on time.
Applying for Lots of Credit
The simple act of applying for a line of credit triggers something called a hard inquiry. One or two hard inquiries on your credit report is fairly normal and won’t hurt too much.
Each hard inquiry beyond two lowers your credit score substantially more. Plus, each inquiry stays on your report for as much as two year. So, if you go on credit application spree, expect that it will lower your credit score for a while.
The takeaway is that you should only apply for credit occasionally and only when needed.
Carrying High Credit Card Balances
Another major factor in your credit score is your debt to credit utilization ratio. That’s a fancy way of saying how much of your credit limits you use. When you carry high balances, you debt to credit utilization is high.
For a good score, you want that ratio at around 30 percent.
Credit bureaus frown on it if you only have one kind of credit. For example, they might lower your score if you only have credit cards.
They want a mix of credit cards, car loans, and mortgages. It’s a bit like employers who want employees with more than one skill.
If you’re already in trouble with your credit score, though, you’ll can find help with services like Inside Credit Repair.
Understanding Credit and You
Understanding credit and what things will hurt your credit score can help you avoid a lot of problems. Lower credit scores can bar you from getting loans or mean paying far higher interest rates.
Pay close attention to things like your bill payment history. Pay your bills on time as often as possible.
Don’t max out your credit cards to keep your utilization rate low. Only apply for credit when must. Looks for ways you build out a healthy credit mix.
Looking for more personal finance tips? Check out the posts in our Finance and Lifestyle sections.