Activities That Can Hurt Your Credit Score

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Credit scores play a crucial role in many aspects of life, from securing loans to renting an apartment. Consequently, it’s essential to be aware of the activities that can hurt your credit score and take steps to avoid them. We’ll discuss the impact of high credit utilization, missing payments, and closing old accounts on your credit score.

High Credit Utilization

One of the factors that can negatively affect your credit score is high credit utilization. Credit utilization is the percentage of your available credit that you’re currently using. Generally, it’s recommended to keep your utilization rate below 30% to maintain a healthy credit score.

Using a significant portion of your available credit can signal to lenders that you’re reliant on credit to manage your finances, making you a higher risk borrower. To avoid high credit utilization, monitor your credit card balances regularly, and aim to pay off your debts as quickly as possible. Additionally, consider requesting a credit limit increase to help lower your utilization rate.

Missing Payments

Another activity that can hurt your credit score is missing payments. Late or missed payments on loans, credit cards, or other financial obligations can have a significant impact on your credit score, as payment history accounts for 35% of your FICO score calculation. Getting foreclosed on can make it harder to get a loan in the future. To avoid missing payments, set up automatic payments for your bills or set reminders to make manual payments on time. If you’re struggling to meet your financial obligations, consider reaching out to your creditors to discuss alternative payment arrangements or seek financial counseling to help you create a budget and manage your finances more effectively.

Closing Old Accounts

While it may seem counterintuitive, closing old accounts can hurt your credit score. This is because closing an account reduces your available credit, which can increase your credit utilization rate. Moreover, closing a long-standing account can shorten your credit history, another factor that influences your credit score. If you’re considering closing an account to simplify your finances, weigh the potential impact on your credit score against the benefits of closing the account. In some cases, it may be more beneficial to keep the account open and maintain a low or zero balance. However, if the account has high fees or poses a risk to your financial well-being, closing it may be the best option.

Maintaining a healthy credit score is essential for achieving financial stability and accessing credit when needed. By understanding the activities that can hurt your credit score, such as high credit utilization, missing payments, and closing old accounts, you can take proactive steps to protect and improve your credit rating. Monitoring your credit report regularly and making responsible financial decisions will help you maintain a strong credit score and set you up for long-term financial success.

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