Your credit score is more than just a number—it’s a key factor in your financial well-being. It affects your ability to get loans, secure a mortgage, rent an apartment, and even land certain jobs, so keeping it in good shape is essential for your financial health. But exactly what can hurt your credit score? There are many factors, some obvious and others not so much, that can negatively impact your credit.
In this article, we’ll explore 10 things that hurt your credit score. Some of these may surprise you, but understanding them is the first step toward maintaining or improving your credit.
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What is your credit score?
A credit score is a three-digit number that represents your creditworthiness, or how likely you are to repay borrowed money. The score typically ranges from 300 to 850, with higher scores indicating better creditworthiness. Lenders, such as banks, credit card companies, and mortgage providers, use your credit score to assess the risk of lending you money.
The better the score, the lower the rates. Maintaining a healthy credit score can open financial opportunities and help you save money, while a low score can limit your access to credit and increase borrowing costs.
How is a credit score calculated?
Credit scores are based on information found in your credit report, which includes details about your financial history. The most common type of credit score is the FICO Score, and it is calculated based on the following five key factors, with each factor having a different weight in the final equation:
- Payment history (35%): Do you make payments on time? Late or missed payments can negatively impact your score.
- Credit utilization (30%): This is the percentage of available credit you’re using. High balances relative to your credit limits can lower your score.
- Length of credit history (15%): This tracks exactly how long you've had credit accounts. A longer credit history can improve your score.
- New credit (10%): How many recent credit inquiries or new accounts have you opened? Applying for too much credit in a short period can lower your score.
- Credit mix (10%): This represents the variety of credit types you have, such as credit cards, loans, and mortgages. A diverse mix can positively affect your score.
By being aware of how these elements contribute to your score, you can better recognize the actions that may harm it and take steps to avoid them.
What hurts your credit score?
These 10 key factors could negatively impact your credit score; we’ve estimated the damage level for each one.
1. Missing payments
Damage: Severe
So, what hurts your credit score the most? Missing a payment. Your payment history makes up 35% of your credit score, according to FICO, so even one late payment can hurt. The more payments you miss, the worse the impact. Late payments can stay on your credit report for up to seven years, causing long-term damage.
How to avoid:
Set up automatic payments or create reminders to ensure you never miss a due date. If you're struggling, contact your creditor to see if they'll offer a temporary hardship plan.
2. Carrying high balances
Damage: High
Using too much of your available credit can significantly lower your score. This factor is called your credit utilization ratio, and it accounts for 30% of your score. Ideally, you should keep your credit card balances below 30% of your credit limit. For example, if your credit limit is $5,000, try to keep your balance under $1,500.
How to avoid:
Pay off your balance in full each month if possible. If not, aim to pay more than the minimum payment to lower your utilization ratio.
3. Closing a credit card
Damage: Moderate to high
Does closing a credit card hurt your credit? Yes, in two ways. First, it reduces your available credit, increasing your credit utilization ratio. Second, it can shorten the length of your credit history, which accounts for 15% of your score. The older the account, the more it helps your score, so closing an old card can be particularly damaging.
How to avoid:
If you're considering closing a card, think about keeping it open with a zero balance. If you're concerned about fees, look into converting it to a no-fee version.
4. Applying for multiple credit cards
Damage: Low to moderate
Does applying for a credit card hurt your credit? Well, every time you apply for a new credit card or loan, it triggers a hard inquiry on your credit report. Hard inquiries can cause your score to drop by a few points, and they stay on your report for two years. While one or two inquiries won't have a severe impact, applying for multiple cards in a short period can raise red flags for lenders.
How to avoid:
Only apply for credit when necessary, and space out your applications to avoid the accumulation of hard inquiries.
5. Debt consolidation loans
Damage: Moderate
Does debt consolidation hurt your credit? Yes, it could hurt your credit score in the short term. Applying for the loan triggers a hard inquiry, and opening a new account reduces the average age of your credit. If you're not careful, you could also be tempted to use the newly freed-up credit lines, increasing your overall debt.
How to avoid:
Consolidation should be done as part of a larger debt repayment plan. Stick to paying off the consolidation loan without racking up new debt.
6. Medical bills
Damage: Moderate
Can medical bills hurt your credit? Only if they go unpaid for an extended period and are sent to collections (otherwise, medical bills themselves don’t show up on your credit report). At that point, they can cause significant damage to your score. Once in collections, medical debt can remain on your report for seven years, even if it's eventually paid off.
How to avoid:
Always negotiate with healthcare providers or work out a payment plan before the bill reaches collections. Keep track of all medical expenses to avoid surprises.
7. Breaking a lease
Damage: Moderate
Does breaking a lease hurt your credit? It can actually be costly—not just in terms of fees but also in terms of your credit. If you owe your landlord money for breaking the lease, and they send the debt to collections, it can negatively impact your score. This will show up as a collections account on your report, which can drop your score significantly.
How to avoid:
If you need to break a lease, try negotiating with your landlord for a payment plan or find a replacement tenant to avoid the debt going to collections.
8. Balance transfers
Damage: Low to moderate
Do balance transfers hurt your credit? Though they can offer temporary relief by moving high-interest debt to a card with a lower rate, they can hurt your credit if you're not careful. If you open a new card for the transfer, that new inquiry and account opening can drop your score.
Additionally, if you don’t pay off the transferred balance before the promotional period ends, you may face even higher interest rates.
How to avoid:
Use balance transfers strategically, and pay off the balance as quickly as possible. Avoid transferring balances multiple times to prevent damage from hard inquiries.
9. Debt settlement
Damage: High
Debt settlement is when you negotiate with creditors to pay less than what you owe. So, does debt relief hurt your credit? While this can relieve your immediate financial burden, it can severely damage your credit score.
Settled debts are marked as “settled” instead of “paid in full,” and this can stay on your credit report for up to seven years. It signals to lenders that you didn’t fulfill your original debt obligations, making them wary of lending to you in the future.
How to avoid:
Exhaust all other options before settling a debt. Try negotiating a payment plan or working with a credit counselor first.
Read this next: How to Become Debt-Free: 7 Steps to Get There
10. Refinancing a loan
Damage: Low to moderate
Does refinancing hurt your credit? Refinancing a loan may save you money on interest, but it can hurt your credit score in the short term. The hard inquiry from applying for a new loan and the creation of a new credit account can lower your score temporarily. However, the long-term effects can be positive if refinancing lowers your monthly payments, making it easier to keep up with debt.
How to avoid:
Only refinance if it makes sense for your long-term financial goals. Make sure you can handle the new terms, and avoid taking on new debt after refinancing.
How do I find out what is hurting my credit?
If you're not sure what's dragging down your score, here’s how to find out:
- Check your credit report: You're entitled to one free report annually from each of the three major credit bureaus: Experian, Equifax, and TransUnion. Look for any negative marks like late payments, high balances, or accounts in collections.
- Dispute inaccuracies: If you spot errors on your report, dispute them with the credit bureau. Removing an incorrect negative mark can boost your score almost immediately.
- Track your score regularly: By checking your score regularly, you'll notice any fluctuations and can take action to address issues quickly.
- Use a credit monitoring service: Credit monitoring services offered by credit bureaus can alert you to any significant changes or negative factors affecting your score in real-time.
Now you know what causes bad credit scores: It's influenced by various factors, many of which are within your control. By maintaining good habits, you can avoid common pitfalls and keep your score healthy.