5 Pitfalls That Can Hurt Your Credit Score

Getting a good credit score is a great achievement. It can help you qualify for the credit you need at the best rates. However, once you get there, it’s important to stay vigilant to maintain your good standing. Stay on track and avoid these common pitfalls that can hurt your credit score.

1. Getting lazy about payments

What can happen: It's easy to get distracted from the essentials, like utility bills and car payments. Even just missing a few monthly payments can damage your credit score and remain on your credit report for years.

Your payment history is the single most important factor impacting your credit score, representing about 35%. How much your score drops after a late payment depends on other information in your credit profile, but in general, the better your score, the bigger the impact.

How to avoid it: Stick with your payment plans. Take advantage of tools like automatic payments and account balance alerts to make sure you have enough money for your bills. Contact your lenders and ask to adjust your payment date to the day of the month that works best for you. Check out these other everyday money habits that help keep your credit in check. If a single monthly payment is easier for you to manage, consider a debt consolidation loan to streamline your payments.

2. Maxing out your cards

What can happen: Pushing your credit utilization ratio over 30% can happen quickly if you're using credit to purchase everyday essentials, and doing so can drag down your credit score considerably. Credit utilization is the second biggest factor driving your credit score, and it signals to creditors whether you’re overextended or living within your credit limit. Staying below a 30% credit utilization ratio is a good goal, but the lower the better.

How to avoid it: Create a budget and stick to it. If you find you’re overspending, revisit it. Tally up your income and your expenses and see where the money is going. It may be time to adjust your spending goals to help you stay on track or try some of these simple hacks to cut back on spending. If you already overspent on your credit cards, consider refinancing your credit card debt with a personal loan that may help you save money and pay down your debt faster.

3. Opening a lot of new accounts at once

What can happen: Opening new credit card accounts in a short time period can mean multiple hard inquiries, which can impact your credit score. The record of a hard inquiry stays on your credit report for 24 months, but its impact on your credit score decreases with each passing month and is relatively short-lived. Nevertheless, a drop in your credit score at the wrong time can cost you a lot in interest if you aren’t careful.

How to avoid it: Only apply for credit when you actually need it. If you want to shop around for the best rate, check out lenders that only perform a soft inquiry for a rate check or make sure to do your rate shopping within a short timeframe. When it comes to mortgages, auto loans, and student loans, credit scoring companies treat multiple inquiries for the same loan within a certain window of time as just one hard inquiry (the window varies from 14 to 45 days, depending on the credit scoring company).

4. Missing errors on your credit report

What can happen: Mistakes happen, even when it comes to your credit report. Errors on your credit report can take several months to correct, and that's only after you discover them.

How to avoid it: Sign up for free credit monitoring with automatic alerts so you always know when something in your credit profile changes. Review your full credit report once a year and if you find a mistake, take action to fix the error.

5. Engaging a debt settlement company

What can happen: If you're having trouble making his monthly payments, you might be tempted to sign up with a debt settlement company. Although they may be able to "settle" some of your debt for less than the full amount, you'll typically ended up paying fees to both the debt settlement company and your creditors. Plus, your credit score can suffer.

How to avoid it: If you find yourself with unmanageable debt levels, contact your creditors directly and see if you qualify for hardship programs, rate reductions, or other payment plans before heading to a third-party.

Summary

Whether you already have a good credit score that you want to maintain or you’re striving to improve your score, it’s important to avoid these common pitfalls that can drag you down. Stay on top of your monthly payments, keep your spending in check, and only take on new credit if you really need it. Check out Upgrade’s Credit Health tool for free credit score monitoring and other resources to help you make the most of your credit.