1. Making late payments
A single late payment on a credit card or other loan could ding your score by as much as 110 points if you already had a great score and 80 points for someone with an average score. So the best thing you can do to improve your score is make payments on time.
This continues to be the number one reason scores are lower. In addition to being a heavily weighted part of your score, if you’re late on a payment, it’s going to continue to appear on your credit report for about seven years.
If you’ve made mistakes in the past, you can’t change them, but you can outlive them. The longer it’s been since you were late on a payment, the less of an impact it will have on your score, but “your history does follow you. Since payment history accounts for about 35% of your total score, it’s really important to start paying on time.
2. Carrying a big balance
Your debt utilization ratio accounts for almost 30% of your score. So carrying too much debt will not only cost you a fortune in interest, it can also destroy your credit rating.”The best thing to do is pay your bills on time and pay as much of the balance as possible to try to keep your debt utilization ratio down and raise your credit score.
As part of the CARD ACT, credit card issuers must now include a chart with your bills that shows how long it will take to pay off your balance if you only make the minimum payments. The chart will also display how much you need to pay each billing cycle in order to completely pay off your balance in three years. This new information will be a huge wake-up call for most consumers,
3. Closing a credit line
As credit card companies hike up interest rates and add inactivity fees to compensate for lost revenues, it’s tempting to just close your accounts. But closing a line of credit could impact your debt to utilization ratio. For example, if you have two credit cards with a limit of $1,000 each and a $400 balance on one card, closing the other account will immediately double your debt to utilization ratio from 20% to 40%.
But the negative effect varies greatly. Closing one card could have a very small impact if you have lots of other high-limit cards. You can also counteract some of the impact by opening up a new line of credit. But beware: that can also impact your score.
4. Opening a credit line
When you open a new account, you’ll knock some points off your score., The reasoning is that the people who open new accounts tend to be of a higher risk level immediately after opening a new account.
In order to open a new account, a credit card company will need to check your credit, and a typical “hard” inquiry like this will lower your score by about five points, plus the cost of opening a new line of credit typically ranges from five to 15 points.
But the temporary ding only lasts about six months, so if you’re in a stable financial situation, the score reduction could be worth it. You can look at it as a long-term strategy and go in with the idea that you might lose a few points now but in the long run you might be better off because you’ll have more credit available.
5. Defaulting
Defaulting on a loan is the single worst thing you can do for your credit, And given the down economy, more people are damaging their credit scores through foreclosures, credit card charge offs and bankruptcies. A home foreclosure, for example, might dock about 100 to 200 points off your score and a short sale could cost you around 80 to 90 points.. Declaring bankruptcy could lower a good score of 750 by up to about 250 points.
While most negative information stays on your report for seven years (bankruptcies can stay on for 10 years), it’s never too late to start rebuilding your credit. People that have been hit hard by the economy and those who had really good scores now have scores in the 500s and want to just give up. But certain good behaviors like making on-time payments, taking out a small loan and paying it off and keeping a low balance, can get your score back up in the mid-600s or low 700s in a less than 2 years.