Factors You Didn’t Know Could Ruin Your Credit Score

If you are a credit card user or if you want to get one, you would surely be aware of what a credit score is and how important a role it plays in your credit journey. A credit score is a three-digit number that is calculated on the basis of your past payment behaviors and various other factors. This number helps the card issuers in determining how creditworthy an individual is or how risky he/she can be as a borrower. Your payment behavior is one of the biggest factors that affect your credit score, but there are several other factors as well. People are generally not aware of all of these important things and they believe that only timely payments can help them build a good credit score. However, that is not true. Apart from your payment history, there are many factors that might ruin your credit score. We are going to discuss the same in this article:

Factors That Affect Your Credit Score Negatively

The following are some of the important factors that impact your credit score in a negative manner. Along with making on-time payments, you should also keep the below-mentioned factors in mind:

Applying For Credit Cards/Loans Too Frequently

If you keep applying for credit cards/loans very often, your credit score may drop by a few points even if you have made all your credit card payments on time. this is because every time you apply for a credit card/loan, the lender/issuer checks your credit report and this is referred to as a hard inquiry on your credit profile. The number of hard inquiries on your credit profile is one of the major factors affecting your credit score and it makes up 10% of your score. So, you should try to avoid frequent credit applications even if you are in urgent need of credit. Multiple credit applications within a short time period make the card issuers think that you are a risky borrower. Just make sure that you take a decent gap of at least 3 to 6 months between your credit card/loan applications.

Using All of Your Credit Limit

You get a credit limit with every credit card and this s the maximum amount that you can spend using this card in a billing cycle. But, in order to maintain a good credit score, you are not supposed to utilize 100% of your credit limit. It is never a good idea to use more than 30% of your total credit limit if you want to build/maintain a good credit score. If you have a really low credit limit, you should try to improve it by requesting the same from your card issuer or try getting more cards to increase your total available credit limit.

Closing an Unused Credit Account

Generally, credit card users close a credit card if they rarely use it or they have other better options. But, if this unused card is not charging a really high annual fee, you should not close it even if you don’t use it anymore. The average age of your credit accounts is also one of the important factors that are considered by the credit bureaus while calculating your credit score. Closing a credit account results in reducing the average age of your accounts and it further impacts your credit score. Therefore, you should try not to close any credit account until this card is really expensive.

Having Only Unsecured Credit Accounts

Having a good credit mix also plays a significant role in the calculation of your credit score. This is why it is advised to have a mix of secured as well as unsecured credit cards or loans. Having only unsecured cards will not have a very bad impact on your credit score, but it may drop your score by a few points. Therefore, it is better to have a mix of unsecured credit cards as well as secured loans or credit.

Bottom Line

Everyone knows that delayed payments affect your credit score in a negative manner, but this is not the only factor that should be kept in mind. There are a lot more factors affecting your credit score that you might not be aware of. Having a good credit score is really important as you can not get any loans/credit easily if you have an average or a bad credit history. You should keep all the above-mentioned points in mind and try to build your credit score and maintain it always. If you have any further doubts regarding this, you can freely ask us in the comment section below!