What Can Lower Your Credit Score

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Your credit score is an important indicator of your financial health. Lenders and service providers may use it to decide whether to extend you credit or services. Some car insurance providers may also set your insurance rate.

It’s good to know what factors impact your credit score. Your credit score is a numeric representation of your credit history. The FICO credit scores take into account 5 factors:

  • Payment History – 35%
  • Amounts Owed (credit utilization) – 30%
  • Length of Credit History – 15%
  • Account Inquiries – 10%
  • Types of Credit in Use – 10%

Here are some specific factors that negatively impact your credit score:

  1. Paying late. Having late payments reflected on your credit report will negatively impact your credit score.
  2. No payments or defaulting on credit. Deciding not to make payments on an account will extend your delinquency period and hurt your score.
  3. Accounts with collection agencies. If you decide not to pay your accounts (credit or service agreements), your account may be sent to collections.
  4. Having liens or judgments. Liens or judgments are legal requirements that must be fulfilled. These can be tax or child support liens or judgments against you brought on by creditors.
  5. Foreclosures. When you stop paying on your mortgage, you will have late payments reported that could lead to losing your home with information reported to your credit.
  6. Repossessions. Having your car repossessed will have an impact on your credit score.
  7. High credit card balances. Having high credit card balances relative to your credit limit or maxed out credit cards will impact your credit utilization rate.
  8. Closing credit cards. Closing credit cards will hurt your score whether you currently have a balance or not. This lowers your available credit and may increase your credit utilization.
  9. Closing old credit cards. Your credit is also based on the length of your credit history. Closing old credit cards may shorten your credit file.