Factors that negatively impact your credit score: Some are unexpected

A credit score is a crucial financial tool that lenders use to assess your creditworthiness. While several factors can positively influence your credit score, there are also numerous elements that can negatively impact it, some of them you may not have even considered. Understanding these factors can help you avoid potential pitfalls and maintain a healthy credit score. Here are some key factors that can negatively impact your credit score:

1. Late or Missed Payments

Your payment history is one of the most significant factors in your credit score. Late or missed payments on any of your credit accounts, including credit cards, loans, and even utility bills, can have a substantial negative impact on your credit score.

2. High Credit Utilization

Credit utilization refers to the percentage of your available credit that you’re currently using. A high credit utilization ratio can indicate that you’re over-reliant on credit and may struggle to repay your debts, which can negatively affect your credit score.

3. Applying for New Credit Frequently

Each time you apply for a new line of credit, a hard inquiry is made on your credit report. While one or two inquiries won’t significantly harm your score, numerous inquiries over a short period can lower your score and signal to lenders that you may be a high-risk borrower.

4. Defaulting on Loans

Defaulting on a loan or credit card debt is a serious event that can drastically lower your credit score. This includes events like foreclosures, bankruptcies, and tax liens.

5. Closing Old Credit Cards

While it might seem counterintuitive, closing old or unused credit cards can actually hurt your credit score. This is because it decreases your available credit and can increase your credit utilization ratio.

6. Having Only One Type of Credit

Credit scoring models favor borrowers who can handle different types of credit. If you only have one type of credit, such as only credit cards or only a mortgage, it can limit your score.

Maintaining a healthy credit score is a balancing act. By understanding the factors that can negatively impact your score, you can make informed decisions and take steps to protect and improve your credit health. Remember, building a good credit score takes time and patience, but the benefits are well worth the effort.