If you’re wondering what hurts your credit score the most, the top financial experts agree that it comes down to two things: having a high balance on one or more cards without a lot of available credit, along with a history of late or missed payments on your accounts.
The first step to understanding how to improve your credit score is to look at these two common mistakes that will have the biggest impact on your financial future and the ability to improve credit limits and interest rates on current credit cards. Understanding what affects your credit score negatively is a critical part of managing credit wisely.
Using Too Much of Your Available Credit
Having too many credit cards with a substantial balance or even just a few cards with a high balance and low available credit can be a big factor in what affects your credit score negatively. Financial experts recommend using less than 30% of your available credit - that includes each credit account - to maintain a positive credit rating.
Add up all of your credit card balances and compare that with the available limit on each account. If you discover that you’re using more than 30% of your available credit, it’s time to start making some additional payments to get that debt ratio down and improve your credit score.
Late or Missed Payments
Having missed payments posted to your account record or regularly making late payments on other credit accounts has an impact on credit scores. Your payment history on all current and previous accounts impacts your credit score. When you pay your bills on time every month, it shows that you are a reliable consumer who is more likely to pay back their consumer debts.
Already have a late or missed payment? Contact your lender’s Customer Service department and ask to have it removed from your record. This is often a one-time courtesy that will prevent the mistake from being reported to the credit reporting agencies.
Other Credit Factors to Consider
There are also other factors that will impact your credit rating, such as the total number of credit accounts you currently have, the age of your overall credit history, and how many hard inquiries have been made into your credit report. While these aren’t the most important issues, they definitely have an impact on your interest rates, available credit line and other credit agreement details.