1) Making Late Payments
- In general, your payment history has the strongest impact on your credit score. About 35 percent of your Equifax Credit Score, for example, is based on your payment history. That means that any late payments – whether on your credit cards, an auto loan, your mortgage, or another credit account – could cause you credit score to take a dive. Your late payment history will stick around on your credit report, too. For example, one delinquent payment that is 30 days late can remain on your credit report for up to seven years.
- Tip: Paying your bills in full and on time should reflect positively on your credit score. To avoid a late-payment blemish on your credit report, consider using automatic payments or setting up electronic payment reminders on your phone or computer.
2) Racking Up High Balances
- Your credit score also takes into account your credit utilization (how much of your available credit you are using). A high debt-to-creidt ratio – meaning that you are borrowing a significant portion of available credit – will generally have a negative impact on your credit score.
- Tip: Work on keeping your ratio of debt to available credit as low as possible to help boost your credit score. Avoid carrying a balance of more than 30 percent of your credit limit because if you take on any more debt, lenders may view you less favourably. If you are carrying debt, work on paying if off as quickly as possible. Paying off your current debt may open up some of your available credit
3) Applying for a lot of Credit at Once
- If a creditor or lender accesses your credit report because of a transaction you initiated, it will trigger a hard inquiry on your credit report. If you apply for too much credit over a short period of time, triggering many hard inquiries, your credit score could drop and lenders may view you as a higher risk.
- Tip: Because credit scoring models consider your recent credit activity to evaluate your need for credit, only apply for credit when you really need it to avoid overextending yourself.
4) Closing an Account
- Closing one of your credit accounts could reflect negatively on your credit score because if will change your credit utilization. If you close an account, you may lower the combined credit limit on all of your accounts, making your debt-to-credit ration appear higher.
- Tip: While positive credit behaviour – such as paying your bills on time – will reflect positively on your credit score, you don’t need to carry a balance on all of your accounts. Instead of closing an account, consider paying off a small purchase on the account every few months, which will generally get reported to the credit reporting agencies.
5) Having a Short Credit History
- About 5 to 7 percent of your Equifax credit score is based on the length of your credit history, and the score considers both the age of your oldest account and the most recent account opened. If you do not have at least one credit account open for at least six months or if you do not have at least one credit account in the last six months, you man not have a credit history or credit score. Without a credit history, it is difficult for creditors to determine your creditworthiness when making decisions about extending you credit.
- Tip: If you plan to borrow money in the future, start thinking about establishing your credit history now. If you don’t have a credit history or you have a thin file, consider opening a retail, gas or low-interest credit card in order to start building a positive credit history.
Know where you stand: as you work on boosting your credit score, make sure to regularly monitor your credit report so you know where you stand. If you spot any errors on your credit report, file a dispute with the necessary agency to have the erroneous information corrected as soon as possible.