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5 Ways You’re Accidentally Wrecking Your Credit

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It’s one thing to knowingly make decisions that hurt your credit score. We’ve all been there, and sometimes tough decisions must be made. But it’s an entirely different situation to accidentally wreck your credit.

In some cases, we make decisions without realizing the impact on our credit. In other cases we may know that certain decisions can hurt our score, but we don’t appreciate the severity of the impact. Either way, maintaining good credit requires more than casual attention.

It is entirely possible that you could be accidentally wrecking your credit, and here are some of the ways that you could be doing just that.

1. Not Paying Attention to Your Credit Balances

Good credit is about more than just paying bills on time. About 30% of your credit score is based on your amount of debt, which includes your credit utilization. That’s the ratio of how much you owe on your credit lines divided by the total credit limit of those lines. For example, if you have total credit lines of $40,000, and you have a total outstanding balance of $10,000, your credit utilization ratio is 25% ($10,000 divided by $40,000).

If that ratio exceeds 30%, it can have a negative impact on your credit score. If you are casual about your credit balances, they can slowly creep up to 40%, 50%, 60% or more. At that point, you may see your credit scores begin to sink.

2. Closing Accounts

A lot of people make it a habit of closing out any credit cards that they pay off. From a credit perspective, however, this can have a negative impact. Though it seems counter-intuitive, a paid in full line of credit or credit card is a positive contributor to your credit score, even if you stopped using the account.

This brings us back to credit utilization. If you pay off a credit card that has a line of $5,000, that available credit is contributing to the total amount of credit you have available. That will improve your credit utilization ratio. Closing the card will lower your available credit, increase your overall credit utilization, and potentially lower your credit score.

3. Co-Signing Loans

Co-signing loans is another area where people are often very casual. They often assume that they are just doing a good deed to help a friend or family member, and may even mistakenly believe that it’s simply a one-time event.

But when you co-sign a loan, you will be involved in that loan and that loan will be on your credit report until it is fully paid. In the event that the primary borrower makes a late payment, this will have an impact on your credit score. Worse, should the loan go into default, this will also show up on your credit.

4. Applying for Too Many Lines of Credit

If you have good credit, it’s likely that you are getting bombarded with credit offers in the mail on a weekly basis. If you are in the habit of applying for the better ones every month or so, you could be unknowingly hurting your credit.

Credit inquiries account for 10% of your overall credit score. While this is the least significant factor, these hard pulls — as they are called — can ding your credit. Consider the impact these inquiries can have the next time you consider a 0% credit card offer or bonus miles sign-up deal.

5. Not Monitoring Your Credit Scores

One of the best ways to know if you are hurting your credit is by monitoring your credit scores. Credit scores change on at least a monthly basis, but typically stay within a tight range. A significant drop in your scores, say more than 25 or 30 points, is an indication that something is wrong. You won’t know about the drop, however, unless you are paying attention to your credit scores on a regular basis.

A significant drop in your score could be an indication that your credit utilization ratio is getting too high. It can also indicate an unsuspected late payment. Errors are also possible when it comes to credit. And at the extreme, a big drop in your credit score could be an indication that you are the victim of identity theft.

You won’t know any of these unless you are monitoring your credit scores on a regular basis. Unfortunately, ignorance is not bliss when it comes to your credit. You shouldn’t obsess about it, but at the same time, you should never be too casual about it, either. Bad things can happen when you’re not paying attention.

Fortunately, there are a number of ways to obtain and monitor your score for free, including through Credit.com.

More on Credit Reports & Credit Scores:

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  • Greg

    I recently got all high end cards, prestige,visa black, Marriott rewards, arrival elite, venture, amex platinum preferred rewards and everyday card, Amazon and Brooks bros MasterCard platinum, discovery it all with 5 to 15k limits, avg about 12k… But, I brought score from 590s to 730s in 18 month’s… In doing so, I got a bunch of high interest cards 2 secured with 500 limits, 2 first premier with 450 on them, 2 credit one w 1200 (one being my oldest card, about 2 yrs old) they don’t help my utilization bc limits are so low, but, they are 2yrs old some more like a year, and about 12 store cards for credit mix with my 16 yro student loan…

    I read, say I close out my 1st card, credit one, the 27months remain on the report for 10 yrs… See I can’t snip these and throw in drawers 1. Bc they have high fees and I feel it’s stupid to chance missing a payment, especially with over 3yrs of 100% payments (NEVER paying any less than 50% off at a time, sometimes few times a month) I just want to free myself of at least all but MAYBE my oldest card if it’ll help… That’s why I pulled trigger on all those aforementioned cards past couple months, bc I wanted to replace them before I cancel 6-8 cards… A lot of my new cards have high fees but many waived first year, other’s the 495 is reimbursed just in free greens fees, high end gifts like Ray bans, complementary stays, 250 statement credits on travel, upgrades etc… But paying a 5th of my cl in fees on these builder carda is going to cost a grand if I don’t cancel, and I have to check them each month, PLUS they drag down my avg cl…

    All they, at this point can do is hurt me! JUST HOW they get me, is the question I don’t soon want to find out the answer to! I KEEP my utilization down in the single digits most months… I’ve worked far too hard to mess up now, any advise would be huge!

    • http://www.credit.com/ Credit.com Credit Experts

      Sometimes secured cards allow cardholders to “graduate” to traditional cards. It’s worth calling your issuer to ask if there is a fee-free product you now qualify for (very likely, with your improved credit score). That way, you keep the credit line open but eliminate the fee. Clearly you’ve formed good habits that are keeping your credit scores high. But give calling your issuers a chance. (And if you need to cancel a card to eliminate the fees, go ahead and do so . . . but be sure you are not closing several at a time, or affecting your credit limit so that you have a higher debt-to-credit limit than 30% (keeping it under 10% is even better). Here’s how to monitor your credit score for free.

    • Mona

      Hi Greg, I understand your question…..you are in almost the same boat I am in. I am rebuilding credit as well. I sstarted out 3 years ago in the low 500’s and now my FICO scores are all above 740. My first cards were just like yours. I have had my Credit One cards for 3 years now, they are my oldest trade lines but were killing me on the yearly/monthly fee and they were my lowest credit limits at $1200 and $1500, when all my other cards (I have many of the same that you have) are all at least $8000 and most over $12,000. I would suggest you cancel the cards in question, you still have them reporting for 10 years so the effect on your average age of accounts will not be immediate and by then, your other cards will all have over 10 years on them for your average age of accounts. If you had those secured/high interest accounts for a decade, it would be a different story but if it has only been 18 months, I don’t believe it will affect you much. I had 2 secured cards through Credit One and one through First Premiere that I canceled 3 months ago and it did not have any negative effect on my FICO. Like you, I now have many other cards with really decent limits and keep my utilization below 9% at all times. Cards like Credit One and First Premiere are starter cards, the key word being “starter.” They served their purpose and now it is time to move on. Just my opinion and two cents, for what it is worth. By the way, great job on building your credit profile and score, it is an awesome feeling. :-)

  • Mona

    Hello Rob, thank you for this great article. In regards to #4, I have been told that opening too many new lines of credit can also negatively affect your average age of accounts, and subsequently lower your credit score. Is this correct?

    • http://www.credit.com/ Credit.com Credit Experts

      Mona —
      Rob’s story said something about applying for credit card offers every month or so — that’s a lot! Any “hard inquiry” (credit score pull for the purpose of extending credit) causes a small, temporary dip in your credit score, but if you are applying that often, you are not giving your score time to recover. So chasing deal after deal (or signup bonus after signup bonus) can be overdone.
      You can get a free credit score along with a personalized explanation about how your credit habits affect it from Credit.com if you’re curious about how your own behaviors are reflected in your scores.

      • Mona

        I understand the effect of multiple hard inquiries. I was just adding that in addition to the damage caused by hard inquiries, (however temporary) those hard inquiries will likely result in new trade lines being added to your report and this can also cause a negative impact on the credit score because it lowers the average age of accounts, which is also factored into the FICO score.

  • cjus2473

    I closed an account who began charging me $39 per year to keep open…it was paid off, I never used it, the customer service was horrid and yes, my credit score went down 32 points but I don’t have to pay the $39 fees

  • Should Have Listened

    Ah yes, #3, when the subject came up (never with me) my dad said he would never co-sign a loan for me, he would either help me get the loan or loan it to me directly. I held that very close for a long time. My step-daughter asked me and after a lot of discussion and hesitation on my part, I gave in. She’s just made a second late payment and my credit score has collapsed.

    • http://www.credit.com/ Credit.com Credit Experts

      Thanks for sharing. Maybe your experience can help someone else avoid the same thing.

  • John

    For the last two years we pay all credit card bills in full each month. It is really one card that gets used since we accumulate points on that card. Some months, especially towards the beginning of the year when we are paying all health bills before the deductible kicks in we can have a bill in the $7-8K range, but paid in full. My credit rating dinged down from 806 to 791 (or so) likely because of this, but the bill was paid-in-full. So, do I just essentially ignore this or do something different?

    • http://www.credit.com/ Credit.com Credit Experts

      It should come right back up. It probably went down because you had a high debt relative to your credit limit. However, 791 is still an excellent score.

      • John

        Thank you.

  • bob tampa fl

    I really tried to bring my score up,then I relized that cash is king ,so I decided to stop and shut my credit cards down 10 years later I have amaded a small fourtune in stocks instead of loans. I have no credit now and no bills I save very 4 years for a car my house is paid off and my health is a lot better now so to hell with credit and god bless cash!!!!

    • Mike Messerschmidt

      My brother did the same thing and it worked great…

      …until he was diagnosed with a rare form of blood cancer and watched all of his savings, investments, and even his home be liquidated to help pay for the medical bills insurance didn’t cover. Hundreds of thousands of dollars and 14 years later, he finally passed after a long determined fight. Instead of his kids getting about $250,000 apiece, they each got $2,500 divided four ways from his life insurance :(

  • Bonnie B Watson

    I closed 2 paid off accounts, it lowered my credit score for about 4 months and I knew it would. But I closed them because I had an old account that I had forgot, and someone else used it for me! And I’m still filling out forms, and I don’t understand why if you pay your bills and decide you don’t want a credit card “you get punish” for being responsible. You are force you to have debit, and if you don’t have that card you want be tempted to use it. It’s hard to save, but if you don’t have to have it, I say save and buy cash when you can. I also know you have to use credit, but you always have to think in the long term about the “what ifs” in life.

  • Greg

    I have an off topic question, but one that I really need the answer to, as even the ppl at Lexington law were unable to provide me with a good answer… As aforementioned in earlier post, I rehabbed my credit by myself until the last couple thing’s where I chose to have Lexington law do the paperwork, as I had a 50.00 off first month, and it was worth it to me to have them dispute and recovery remove the 2 late payments I knew were errors by first calling the bank responsible, before I had them disputed, but wanted necessary paperwork done right first time. They also had an old collections acct removed that had WELL PASSED the 7 yr statute of limitations according to Massachusetts fair credit terms. Which leads me to this question.

    As of current the acct in question has been expunged from all 3 bureaus, and has been close to a year. 3 month’s ago I got a letter with the return address reading “first national collection bureau, Inc”, I thought I was going to have a heart attack @35 then and there! I’ve been type a, borderline obsessive the past year and a half rebuilding my credit, I thought I was about to see it all go down the tubes for another 7 yrs, 4 at least…. I opened it, abd IT WAS THE ACCT THAT HAD STAYED ON MY REPORT A YR TOO LONG ORIGINALLY…

    My first question is, what gives? If expunged, why am I now getting these letters, when I hadn’t received them in past, and until ystrday, had 2 open accts in good standing with them .i cancelled them yesterday as they were dragging down my avg credit line, and only accounted for 950.00 of nearly 50k in credit, my utilization is 11%, so they aren’t going to noticeably affect that, nor were they my oldest accts. Now they put me in collections?

    1. If I ignore it, is there a way for them to reattach it to my report? Wouldn’t that be tantamount to double jeopardy
    2. The language in letter is almost contrary. It offers a payoff of 50% , a lousy 211.00, LOL… However, it site’s the Massachusetts law which clearly states (IF) I MAKE NEW PROMISE; sign any waiver ; sign a piece of paper admitting to the debt… It then can sue me &/or reopen the case on my report.

    SO, EVEN if I wanted to pay the monies to be on safe side, whose to say they don’t report that to the bureau’s. If I call, and am recorded it may count as an admission of guilt… So WHERE is their leverage? It’s almost as if they are inviting me to cut of my nose to spite my face! Like I said, as I read it,even if I were willing to pay the debt, that could end up hurting me, and calling in regards to this to ask these questions doesn’t seem smart either. Do I just continue to shred or do you advise another option I am not seeing? I’d be SO appreciative for any help! I’ve NEVER KNOWN the quality of life a 746 fico 8 provides until recently, I save twice as much $$, and am able to take advantage of terms and rates I never dreamed of, I’d hate to lose it all over 211 bucks!

  • michael

    I just got a high credit line from chase and i am paying 25 USD for a card from wellsfargo .. My score is excellent now.. should i go ahead and close the wells fargo acct as i am not using it and paying 25USD.

    • http://www.credit.com/ Credit.com Credit Experts

      If you have a card you no longer use that is costing you money, it may be a good idea to close it. An alternative is to call Wells Fargo to see if you qualify for a credit product that has no annual fee. That way you could continue to benefit from the “credit age” of the older card without having to pay a fee. You can read more here: The Biggest Credit Mistake People Make

  • Chandra DeSousa

    I have two cards from Chase that haven’t received an automatic increase in LOC in years. Last increase was 2009 on one card and 2011 for the other. How do I get an increase without a hard inquiry?

    • Jeanine Skowronski

      Hi, Chandra,

      Issuers generally conduct a hard inquiry if you request a credit limit increase. They do review your credit typically on their own and may elect to raise your credit limit if they believe your credit score justifies it. Also, you could always ask if they will conduct a credit review or consider raising your credit limit without pulling your credit.



  • http://www.credit.com/ Credit.com Credit Experts

    Maxing out your credit cards, even if you pay the balances in full each month, is bad for your credit. You want to use as little as your available credit as possible. You can read more about that here: https://www.credit.com/credit-reports/tips-for-improving-your-credit-your-amount-of-debt/ Also, paying off a collection account doesn’t really affect your credit score. By focusing on making future debt payments on time & keeping your credit card balances low, you can make progress toward better credit.

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