What Financial Behaviors Will Typically Lead to a Low Credit Score?
If you’re trying to improve your credit score, it’s important to know which financial behaviors will lead to a low score. Find out what they are in this blog post.
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late or missing payments
Your payment history is one of the most important factors in your credit score, so it’s no surprise that late or missing payments can have a big impact.
If you’re habitually late with your payments, or if you regularly miss payments altogether, your credit score will take a hit. The same is true if you have a history of making only minimum payments on your debts.
If you want to improve your credit score, focus on making all of your payments on time, and try to keep your balances as low as possible.
maxing out credit cards
One of the fastest ways to send your credit score plunging is to reach your credit limit on one or more cards. When you max out a card, you’re using up all of the available credit you have with that lender, which looks bad to future creditors who pull your report.
Your credit utilization – or the amount of your available credit you’re using at any given time – is a key factor in determining your credit score. That’s why it’s important to keep your balances well below your credit limits. If you plan on carrying a balance from month to month, experts recommend keeping it below 30% of your total credit limit.
high balances on credit cards
High balances on credit cards will typically lead to a low credit score. This is because it indicates to lenders that you are struggling to manage your finances and repay your debts. It also increases the chance of you defaulting on your repayments, which would further damage your credit score. To avoid this, always try to keep your balances below 30% of your credit limit.
opening too many new credit accounts in a short period of time
Opening too many new credit accounts in a short period of time can be a red flag for lenders and can lead to a lower credit score. This is because it can indicate that you’re relying too heavily on credit to make ends meet or that you’re taking on more debt than you can handle. It’s also important to keep your balances low on your credit cards; maxing out your credit limit can also lead to a lower score.
closing old credit accounts
One of the things that can have an immediate and negative effect on your credit score is closing old credit accounts. This can be especially harmful if you close accounts that have been open for a long time and have a good history. When you close an account, it is removed from your credit report and is no longer factored into your score. This can cause your score to drop significantly, especially if it was a major source of positive information. Additionally, closing an account can shorten your average credit history, which is also viewed negatively by lenders.
a history of bankruptcies or foreclosures
Bankruptcies and foreclosures will both have a negative impact on your credit score. In general, a bankruptcy will stay on your credit report for up to 10 years, while a foreclosure will stay on your report for up to seven years. Having either of these items on your credit report will make it difficult to get approved for new lines of credit and can result in higher interest rates.