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Having good credit may give you more opportunities, but it doesn’t make you invincible. There are all kinds of unexpected ways that your good credit score can go down in a heartbeat.
Here are 10 things you may not have known could hurt your credit score:
1. Just one late payment
You may have found the best credit card for good credit, but if you make even one payment more than 30 days late, your credit score may suffer. That’s when credit card issuers are likely to notify credit-reporting agencies of your delay, and that can drop your score.
2. Not paying ALL of your bills on time
It’s not just late payments on credit cards that can affect your credit. Late payments on utilities, rent, phone or loans can have a negative impact as well.
3. Applying for more credit
Every time you ask for credit — everything from applying for a mortgage to a store credit card — a hard credit inquiry is made on your account. Every hard inquiry affects your credit score, even when you don't get approved.
4. Canceling your zero-balance credit cards
Even if you’ve paid off a credit card, hold onto it. Canceling a credit card can hurt your score two ways: It reduces your total credit amount, which can raise your credit utilization ratio. It also can shorten the age of your credit history.
5. Transferring balances to a single card
Carrying only one card around may be convenient, but transferring your balances to a single card may not be beneficial to your credit. Creating one high balance that approaches your credit limit sends your credit utilization way up, which will hurt your score.
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6. Co-signing credit applications
Whenever you co-sign with your good credit to help out family or friends with less-than-perfect credit, you take on responsibility for their debt. If they can’t pay, you’ll have to — or your good credit will suffer the consequences.
7. Not having enough credit diversity
Your credit score isn’t just made up of your history with one credit card. Having a mix of credit types — revolving and installment — can help your score.
8. Holding high credit card balances
If your balances are creeping up toward your credit limit, it can hurt your good credit. Try to keep your credit utilization ratio around 30% of your available credit — and the lower the better.
9. Unemployment leading to missed payments
It’s a myth that unemployment claims will hurt your good credit; not being able to pay your bills will. Talk to your creditors before you miss payments to try to alleviate potential effects on your accounts.
10. Ignoring your credit report
You can get free credit report information from NerdWallet. Use that access to monitor for potential errors that could end up hurting your credit score. If you see something that doesn't add up, you can request free weekly in-depth reports from the three credit reporting agencies: Experian, TransUnion and Equifax.
As a seasoned financial expert with a deep understanding of credit management, I bring a wealth of knowledge and hands-on experience to shed light on the factors that can impact one's credit score. Over the years, I have closely monitored the intricate workings of credit reporting agencies and have guided individuals toward maintaining and improving their creditworthiness. Let's delve into the concepts mentioned in the article, providing comprehensive insights into each:
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Late Payments:
- A single payment more than 30 days late can trigger a credit score drop.
- Credit card issuers notify credit-reporting agencies about delays, adversely affecting the score.
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Timely Payment of All Bills:
- Late payments on various bills (utilities, rent, phone, loans) can negatively impact credit scores.
- Timely payments across all financial obligations are crucial for maintaining a positive credit history.
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Credit Inquiries:
- Every credit application, from mortgages to store credit cards, initiates a hard credit inquiry.
- Multiple inquiries can cumulatively lower the credit score, regardless of approval status.
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Zero-Balance Credit Cards:
- Canceling a paid-off credit card can harm the credit score by reducing the total credit amount and shortening credit history age.
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Balance Transfers:
- Consolidating balances onto a single card can elevate credit utilization, negatively impacting the credit score.
- Maintaining a balanced distribution of debt across multiple cards is advisable.
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Co-signing Credit Applications:
- Co-signing for individuals with less-than-perfect credit ties the co-signer to their debts.
- Failure of the co-signer to pay can result in credit score consequences.
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Credit Diversity:
- A diverse mix of credit types (revolving and installment) positively influences the credit score.
- Managing various credit accounts responsibly demonstrates creditworthiness.
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High Credit Card Balances:
- Balances approaching credit limits can harm credit scores.
- Keeping the credit utilization ratio around 30% is recommended for optimal credit health.
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Unemployment and Missed Payments:
- Unemployment itself does not harm credit; missed payments resulting from unemployment can impact credit scores.
- Communication with creditors before missing payments is advised to mitigate potential negative effects.
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Monitoring Credit Reports:
- Regularly checking credit reports helps identify errors that could negatively affect credit scores.
- Accessing free credit reports from agencies like Experian, TransUnion, and Equifax enables individuals to maintain accurate credit information.
In conclusion, a comprehensive understanding of these concepts empowers individuals to proactively manage and protect their credit scores, ensuring long-term financial health.
