These things could be killing your credit score
Your credit score is your financial fingerprint—it's how lenders identify what kind of borrower you are. And it can have a significant impact on your future. It is, therefore, essential to keep an eye on your credit score. But it can be particularly tricky for college students and recent graduates, who often juggle various financial priorities.
So if you're wondering why your credit score isn't looking as good as you'd hoped, here are seven things that could negatively impact it.
Applying for Credit Too Frequently
The more often you apply for credit, the worse your score will be. Each time you make an application, your bank or lender makes a hard inquiry into your credit history, which lowers your score slightly. A hard inquiry is when a financial institution checks your credit report to grant you an account or line of credit (like a mortgage or auto loan). If they see lots of them on your file quickly, that could make it look like you are desperate for credit and can't manage what you've already got—not an appealing candidate for new lines of credit.
Not Paying Your Bills on Time
Late payments are a big negative for your credit score. Your credit score is calculated based on your credit history, and missing payments or making them late can significantly impact that history.
Maxing Out Your Credit Cards
If you max out your credit cards, it can put a big dent in your credit score. Credit scores depend on an evaluation of different financial factors. One of those factors is how much of each credit limit you use. This factor makes up 30% of your total FICO score, which means that being close to maxed out can seriously affect your overall score.
Making Minimum Payments on Your School Loans
The interest rate on school loans is so high that your debt is not going down even if you pay the minimum every month. It will look like you're barely keeping up with the payments and are a risky investment.
If you want to keep your score in good shape, you should be paying off more than the minimum every month. That way, your debt goes down, and your credit score goes up!
Having a Lot of Different Debts
If one debt seems terrible for you, having several different debts might worsen. The more types of debt you have (credit cards, personal loans, auto loans), the more negatively they can impact your credit score.
Consider consolidating all your debts into one loan with a lower interest rate. Or consider paying off those debts in the most financially sound order; pay off whatever has the highest APR first.
Having a Low Credit Utilization Ratio
Compared with the credit available, the debt you have accounted for 30 percent of your credit score. When your utilization ratio is over 30 percent, lenders may see this as a sign that you rely too heavily on debt and have little leftover in case of an emergency or other unforeseen expense. The less debt you have compared with what's available, the better it looks to lenders—ideally, keep your debt-to-limit ratio under 30 percent.
Closing Old Cards
The average age of a person's open accounts contributes 15 percent to their overall credit score—the older the accounts, the higher the score (assuming that they're in good standing). In addition, closing old cards can dramatically reduce your total available revolving credit limit, reducing your score even further if it pushes up your utilization ratio (see above). If possible, keep old accounts open even after you've paid them off; stash them away in a drawer to prevent accidentally closing them by mistake later on down the road.
Conclusion
Credit scores are essential to everyone in this day and age. They can affect your financial life in several ways, yet most people know little about them. Some of the factors that could be hurting your credit score are within your control, and some aren't. With the proper care and attention, you can improve or maintain an excellent credit score for years to come.
If you're looking for more information on how to fix a bad credit score or maintain a good one, contact National FCG today! We'll help put you on the path toward better financial health.