Many Americans are clueless when it comes to how their credit score is calculated and what actions will damage it when they are reported to their credit report. But, there are several actions that are damaging credit scores when reported to the credit bureaus to be included in your credit report. Consumers who track these damage causing actions can help to ensure that they have the highest credit score possible.
Actions That Are Damaging Credit Reports
Bankruptcy – A bankruptcy is the most damaging thing that can happen to your credit report when it is submitted to your credit report file. Many borrowers find their credit scores drop by 200 points or more. One of the biggest things about a bankruptcy is that it does not happen all alone. It is usually compacted with other financial problems such as the ones listed below which continue to compound the problem.
Short Sales – Short sales, when a homeowner sells his or her home for less than they owe the bank, can also be hugely damaging to credit scores. This is the second in severity that damages a person’s credit score.
Missing A Payment – Your payment history comprises 35% of a person’s FICO credit score, the most popular credit score used by over 90% of all lenders. Missing a payment, especially when a bill is past due for over 60 days, has a worse impact on your credit score than simply paying late. Missing a payment is one of the top things damaging credit reports in America.
Paying Late – Second to completely missing a payment is making a payment late to one of your lenders. Lenders report all late payments to the three credit reporting bureaus. Each late payment is damaging credit reports each time a payment is late.
Closing Credit Cards – A portion of your credit score is calculated by the length of your credit history. Having a long credit history shows borrowers that you have been a good steward of other people’s money that they have lent you over a long period of time. Closing credit cards has the potential to lower the overall length of your credit history on file with the bureaus which will ultimately reduce your credit score.
Applying For Too Much Credit – Requesting too many credit cards or pinging your credit report because of new loan applications in a short period of time can be damaging credit reports and will hurt your credit score when lenders report this to the credit bureaus.
Charging Too Much – one of the key statistics that credit bureaus track is a borrower’s credit utilization ratio. If you have a credit limit of $10,000 spread out over three different credit cards, for example, and have one maxed out at $5,000, then you have a credit utilization ratio of 50%. Of course, borrowers want to have as low a ratio as possible, and many lenders look for ratios under 30%. More than that could be damaging credit reports that are on file with the credit bureaus.
Not Having Different Types Of Credit – If you want to have a great credit score, you have to have different types of credit listed in your credit report. Mortgages, car loans, credit cards, and even department store charge cards are viewed differently by the credit bureaus when comprising your credit score. Not having different types of credit can keep your score lower.
Allowing Accounts To Go To Collections Agencies – If you have an account turned over to a collection agency, that statistic will stay on your credit report for the next seven years even if you settle with the collections agency and pay off the debt. A collection is a huge red flag to many lenders and a statement that is damaging credit reports.
Ignoring Your Bad Situation – Ignoring a problem never makes it go away, and the same can be said for troubles with your credit report. Ignoring letters from lenders or dodging phone calls from collections agencies will only make your troubles worse. One of the best things that you can do is to face your problems head on. Maybe that is through a settlement, payment plan, or some other resolution instead of just hoping that the problems will just go away.
The best way to have a great credit score is not to be irresponsible with how you use credit and manage your debt responsibly. The list above gives borrowers the top ways they that are reported to credit bureaus that end up damaging credit reports. Avoid these pitfalls in order to have the bet credit score possible and a clean credit report.
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