6 Ways You May Be Hurting Your Credit Score Without Realizing It

A friend of mine recently applied for a home loan. When he first filled out the application, his credit score was near perfect. Due to his excellent credit score, some of the closing fees were discounted. Time passed and there were some delays in getting the loan process rolling. When the lender was ready to move on his loan, they ran another credit report. For some reason, his credit score had dropped a few points. This drop ended up costing him an additional $1,500 in closing costs.

A near perfect credit score can save you thousands of dollars over your lifetime, and the reverse for a poor credit score. Rod Griffin, Senior Director of Public Education and Advocacy at Experian  (EXPGY) , says there are several ways consumers may be hurting their credit without even realizing it, and some of them are very sneaky .

Missing payments: One key factor that hurts people’s scores is late payments. Paying a little late may seem harmless enough, but it has a surprisingly significant impact. Even one 30-day late payment can have a substantial negative impact. 

Carrying a high balance: Carrying a high balance is the second most common issue that negatively affects people’s credit scores. As a rule, you should try to keep your credit card utilization rate below 30%. The lower your balances are as compared to your credit limits, the better. If you’re in the habit of revolving large balances on your credit cards each month, you could be hurting your credit score without realizing it, even if you never make any late payments on those accounts.

Closing credit cards at the wrong time: Closing a credit card account causes your overall credit utilization rate to increase, which is a sign of risk. As a result, your credit scores may drop. If you are planning to make a significant credit purchase such as a house or a car in the next three to six months, it’s generally better to leave the account open until the purchase is complete.

Your credit utilization is also called your balance-to-limit ratio. Here is how to calculate it: add up separately all of your credit card balances and then all of the limits on your credit cards. Then divide the total balances by the total limits. This is your balance-to-limit ratio. As a general rule, a lower ratio means a better credit score.

The challenges of cosigning on a loan: When you co-sign for a loan, you are saying that if the person you are co-signing for doesn't pay the debt, you will. That loan will appear on both of your credit reports along with the payment history. If the person you co-sign for doesn’t pay their loan and the account becomes late, that late payment will hurt your credit too.

Defaulting on accounts: The types of negative account information that can show up on your credit report include foreclosure, bankruptcy, repossession, charge-offs, settled accounts and in the event of a charge-off, a subsequent collection account. Each of these can severely hurt your credit for years, even up to a decade.

Applying for a lot of credit in a short time: Each time a lender requests your credit reports for a lending decision, a hard inquiry is recorded in your credit file. These inquiries stay in your file for two years and can cause your score to go down slightly for a short period. Lenders look at the number of hard inquiries to gauge how much new credit you are requesting. Too many inquiries in a short period of time can signal that you are potentially slipping toward financial problems by suddenly taking on a lot of new debt.

Jeanette Pavini is an Emmy Award winning journalist specializing in consumer news and protection. She is the author of “The Joy of $aving: Money Lessons I Learned From My Italian-American Father & 20 Years as a Consumer Reporter.” Jeanette is a regular contributor to TheStreet. Her work includes reporting for CBS, MarketWatch, WSJ Sunday, and USA Today. Jeanette has contributed to “The Today Show” and a variety of other media outlets. You can follow her moneysaving tips and ways to give back on Facebook: Jeanette Pavini: The Joy of $aving Community. Find links to her social media and her book at JeanettePavini.com.