Here’s what you need to know so you don’t unwittingly lower your credit score.

3 minute read

Whether you’re trying to improve your credit or you’ve achieved a good to excellent credit score, you’ll want to keep a close eye on the factors calculated into that crucial rating. Otherwise, you could unwittingly lower your score, making it harder to get credit cards and loans.

While credit scores may seem complicated at first glance, once you know how they’re calculated, you can easily prevent causing your score to drop or remain lower than you’d like.

Below are five factors that can lower your credit score and how to prevent them.

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1. Late or missed payments

Did you know that payment history comprises about 35% of your credit score? That’s why a perfect or near-perfect payment history is crucial to a good or excellent credit score. Many creditors report late or missed payments to major credit reporting agencies after 30 days, although some may wait as long as 90 or 120 days to report delinquencies.

Living on the edge with that possible late-payment leeway isn’t a good idea, though, since negative payment history appears on your credit report for up to seven years and will likely lower your credit score.

Find out: What is a Good Credit Score?

2. Using too much available credit

The second-largest contributor to your credit score is your credit utilization rate, which is the percentage of debt you have to your available revolving credit. Your credit utilization ratio accounts for around 30% of your credit score, so the lower it is, the better for your score.

For a higher credit score, you should keep your credit utilization rate below 30%, according to major credit reporting agency Experian. For example, if your total credit available is $10,000, keep your revolving balance below $3,000 for a 30% credit utilization ratio.

Find out: Why Every Consumer has Three Credit Reports (and Many Scores)

3. Too many hard inquiries

When a creditor pulls your credit file to determine if you’re a good credit risk, that action is called a “hard inquiry,” also known as a “hard pull.” Examples of hard inquiries include those from credit card issuers seeking to approve or deny your application, an inquiry from a bank considering your car loan application.

One hard inquiry probably won’t lower your score significantly, since applications for new credit account for only 10% of your score. However, several hard inquiries in a short period of time – if you’re car shopping and multiple dealerships are pulling your credit, for example – will likely lower your score for a few months.

Find out: How to Build Credit in 5 Simple Steps Using Today’s Tech

4. Closing older accounts

Length of credit history makes up around 15% of your FICO score, so it’s important to keep older accounts open to show a lengthy credit history.

Even if you haven’t recently used a credit card you got ten years ago, don’t close the account. Instead, keep it open, even if you have to make an occasional purchase so your score can benefit from the older account. “Generally, the longer your credit history, the higher your credit scores,” according to Experian.

Find out: 6 Ways to Build Credit When You Have No Credit History

5. Not having a diverse credit mix

If all you have is a few credit cards, you can still have a good credit score. However, you can have an even better credit score if you have a “credit mix” of more than one type of credit in your credit report. For example, a credit mix could include a mortgage, student loan, car loan and a couple of credit cards.

Having a mix of credit won’t impact your credit score significantly – it accounts for only 10% of your FICO score – but it can still benefit your score.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

Published by Debt.com, LLC