5 Mistakes that Can Hurt Your Credit Score

Certain financial mistakes/moves can negatively impact your credit scores. So below, I share 5 mistakes that you can avoid that will help you build and maintain your good credit.

1. Using more than 30% of your available credit card limits.

Your credit utilization makes up 30% of your FICO credit score, that’s close to half of your score.

How do you calculate your utilization in percentage?

• Add up all your revolving credit balances

• Add up your revolving (credit cards) credit limits

• Divide your total balance by your credit limit

• Then multiply it by 100

For example, you have two cards with a total of $7300 credit limits, and have a balance of $1500 on both cards:

$1500 divided by $7300= 0.205, THEN you multiply it by 100= 20.5%

Reminder: It does not mean that you cannot use your entire credit limit, you just must make sure you can pay back whatever you use by the statement date. I previously wrote a blog on when to pay your balance- the statement date instead of the due date. I have the link below:

2. Cancelling your “barely/unused” credit cards

Your credit history makes up 15% of your FICO score, and your payment history makes up 35% of your FICO score, so cancelling a card with a long history will hurt both your credit history and your payment history. It can also negatively affect your credit utilization by increasing your utilization ratio because your total available credit limit will decrease.

So, what should you do instead of cancelling your cards?

Let’s say you have a card you barely use, either because it does not offer any rewards or the credit limit is pretty low, you can:

• Use it for your Netflix subscription and put it on auto pay for 10-15 days after the statement closing date

• Use it once every 3-6 months, and pay it off right away

3. Experiencing major financial setback

This one is a bit tricky because things happen in life that we have no control over, but if we prepare ourselves for the unknown, the impact might be less severe.

What do I exactly mean by that?

• Late payments, maxed-out credit cards, defaulted loans might lead to collections, car repossessions which will report as derogatory accounts on your credit reports. That said, budgeting and having emergency funds are major steps for your financial freedom and credit scores. I recently wrote about High Yield Saving Accounts (HYSA), check it out below, it gives a BETTER alternative to your traditional saving accounts to save for those emergencies. I also have a Weekly Goal Planner that I created and that I personally use to stay on track with my goals and savings. USE CODE: BUDGET for a 35% discount.

4. Making late payments

This one might be the most important one, ONE 30-day late payment on ONE account (credit card, loan, etc) can drop your score by 50 to 75 points. If you find yourself late, make a payment as soon as possible, call the creditor to have the late payment fee/interest waived, BE NICE.

How does late payments work?

Let’s say you have a payment due on January 9, 2023, but you realized you forgot to make a payment, and today is January 29, 2023. G0 head and make a payment right away. Why? Because it is 20 days late, so it won’t be reporting late on your credit reports. Yes, the payment is late, but you have the opportunity to pay it before it is reported. You should still contact the Creditors to ask for a waiver and be sure you stay on top of your payments. It is best to make at least the minimum payment by the due date as your payment history makes up 35% of your FICO score.

5. Applying for a new credit card/loan

Opening a new credit card can temporarily affect your credit score in a negative way, and that can be for several reasons:

• Hard inquiry- whenever you apply for a new line of credit, the creditor will make a hard inquiry which makes up 10% percent of your credit scores

• If you have a short credit history, the new account will cause the average length of credit to decrease

Unlike derogatory accounts, hard inquiries remain on your credit reports for 2 years. So, if you continue to make your payments on time, maintain a low credit utilization, then your score will increase. If it is a loan, it will help your mix of credit which can actually increase your credit score.

Listen loves, when your credit scores decrease, it is not permanent, and you can always bounce back. It may take some time and sacrifices, but good credit is a gift that keeps on giving, so it is worth it. There are no fast, overnight, or magic potion to get your credit back or get it where you want it to but taking the first step is key and you should be proud of yourself.

If you find yourself not where you would like your credit score to be, you can repair your own credit by using our DIY Credit Repair Kit below:

Interested in picking a Certified Credit Consultant’s brain? Have questions about your credit reports? Been stuck at a score and don’t know what to do? We’re here to help, you can book a Private Zoom Session or a FREE Credit Consultation/Audit

That's it for now! :)