Things That Hurt Your Credit

A poor credit score can make financial milestones like buying a home or securing a loan more challenging. Understanding what hurts your credit is the first step toward protecting and improving it. Below, we explore common factors that can negatively impact your credit score, presented in a calm and informative way to help you navigate your financial journey with confidence.

1. Missing or Late Payments

Your payment history is a significant factor in determining your credit score. Consistently paying bills on time demonstrates reliability to lenders. However, missing a payment or paying late—typically by 30 days or more—can be reported to credit bureaus, leading to a drop in your score. Even a single late payment can have an impact, though the effect may lessen over time if you maintain a strong payment record afterward.

To avoid this, consider setting up automatic payments or calendar reminders. If you’re struggling to make a payment, contact your creditor to discuss possible solutions, like a temporary payment plan, before the due date passes.

2. High Credit Card Balances

Using a large portion of your available credit, known as a high credit utilization ratio, can signal financial strain to lenders. Credit utilization is calculated by dividing your credit card balances by your total credit limits. For example, if you have a $1,000 balance on a card with a $2,000 limit, your utilization is 50%. Experts generally recommend keeping this ratio below 30% to maintain a healthy credit score.

To manage utilization, try paying down balances before your statement closing date or spreading purchases across multiple cards to keep individual balances low. Increasing your credit limit, if you qualify, can also lower your ratio, provided you don’t increase spending.

3. Defaulting on Loans

Defaulting on a loan—failing to repay it according to the agreed terms—can severely damage your credit. Defaults often occur after repeated missed payments, leading to actions like repossession (for auto loans) or foreclosure (for mortgages). These events can stay on your credit report for up to seven years, making it harder to secure new credit.

If you’re facing difficulties with loan payments, reach out to your lender early. Many offer hardship programs or modified repayment plans to help you avoid default.

4. Applying for Too Much Credit in a Short Time

Each time you apply for a credit card or loan, a hard inquiry is recorded on your credit report. While one or two inquiries may have a minor impact, applying for multiple lines of credit in a short period can suggest financial distress, lowering your score. Hard inquiries typically stay on your report for two years, though their effect on your score diminishes over time.

To minimize inquiries, research credit options thoroughly and apply only for products you’re likely to qualify for. If shopping for a loan (like a mortgage or auto loan), try to cluster applications within a 14- to 45-day window, as some scoring models treat multiple inquiries for the same loan type as a single inquiry.

5. Closing Old Credit Accounts

Closing a credit card account might seem like a good way to simplify your finances, but it can hurt your credit in two ways. First, it reduces your total available credit, which can increase your credit utilization ratio. Second, it shortens your credit history if the account was one of your oldest. A longer credit history generally improves your score, as it shows a track record of responsible credit use.

Before closing an account, consider keeping it open with minimal or no use, especially if it’s an older account with no annual fee. If you must close an account, prioritize newer ones to preserve your credit history length.

6. Bankruptcy or Debt Settlements

Filing for bankruptcy or settling a debt for less than the full amount owed can have a profound impact on your credit. Bankruptcy can remain on your credit report for up to 10 years, while settled debts may be reported as “settled” rather than “paid in full,” which lenders view less favorably. These actions are often a last resort for those in significant financial distress.

If you’re considering these options, consult a financial advisor or credit counselor to explore alternatives, such as debt consolidation or negotiating directly with creditors, which may have a less severe impact.

7. Errors on Your Credit Report

Mistakes on your credit report, such as incorrect account details or fraudulent activity, can unfairly lower your score. For example, an account mistakenly reported as delinquent or a credit limit listed incorrectly can skew your credit utilization ratio. According to a 2021 Federal Trade Commission study, about one in five consumers found errors on their credit reports.

To protect your score, review your credit reports regularly from the three major bureaus—Equifax, Experian, and TransUnion—available for free weekly at AnnualCreditReport.com. If you spot an error, file a dispute with the bureau and the creditor to have it corrected promptly.

Moving Forward with Confidence

Your credit score is a reflection of your financial habits, but it’s not set in stone. By understanding what can hurt your credit, you can take proactive steps to avoid pitfalls and build a stronger financial foundation. Small, consistent actions—like paying bills on time, keeping balances low, and monitoring your credit report—can make a big difference over time.

If you’re feeling overwhelmed, take a deep breath and start with one or two manageable changes. Resources like credit counseling services or financial planning tools can also provide guidance tailored to your situation. With patience and care, you can nurture your credit and open doors to future opportunities.