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Most of the time, you probably don’t think about your credit score very much. But when it comes time to refinance student loans, rent an apartment, or make another financial move, your credit score becomes very important indeed. To preserve your score — and prevent it from falling into the average or poor range — make sure to avoid doing these seven things that can damage a credit score.
- 7 things that can damage a credit score
- Making late payments
- Defaulting on loans
- Spending too much of your available credit
- Closing an old credit card
- Lacking a sufficient mix of credit
- Opening too much credit at once
- Getting a reporting error on your credit report
7 things that can damage a credit score
What damages your credit score? These seven moves have the potential to drag down your score.
1. Making late payments
Making even one late payment on a loan or credit card could ding your credit score. According to FICO, your payment history makes up 35% of your score.
So falling behind could damage your score significantly. This goes for making late payments on loans and credit cards, as well as on medical bills, phone bills, or even rent.
If the lender, collections agency, or landlord reports your late payments to the credit bureaus, your credit score will take a hit.
Our advice:
If you’ve missed a payment, reach out to your lender or credit card company as soon as possible to talk about your options.
And if you’re worried you’re going to miss a payment soon, see if you can get on an alternative payment plan to prevent your credit score from getting damaged.
2. Defaulting on loans
While late payments can hurt a credit score, defaulting on debts can wreak havoc on it. Defaulting means that you’ve stopped paying for a significant period of time.
Federal student loans, for example, are considered to be in default after 270 days of missed payments. Private student loans are usually considered defaulted after a shorter period of time, sometimes just a few months.
Unfortunately, a default or debt that has gone to collections can stay on your credit report for seven years, making it tough to fully recover your score.
Our advice:
Do your best to avoid defaulting on your debt at all costs. If you’re struggling to keep up with student loans, find out if you can pause payments through deferment or forbearance or apply for an income-driven repayment plan.
If you (or you and a cosigner) can qualify for student loan refinancing, you could also use it to lower payments by choosing a long term of 15 or 20 years.
But remember that refinancing turns federal loans private, making them ineligible for income-driven plans and other protections.
Defaulting on loans is a stressful situation, so explore all possible options for avoiding it.
3. Spending too much of your available credit
Your “amounts owed” make up 30% of your score. If you take on a lot of debt or overspend on your credit cards, your score could go down.
Our advice:
Most experts recommend keeping your “credit utilization” under 30%. So if you have $10,000 in available credit, you should keep your usage under $3,000.
And if possible, find ways to pay off your loans faster. By lowering your debt, you could improve your score.
4. Closing an old credit card
Does closing a credit card hurt your score? It could, since your “length of credit history” makes up 15% of your score.
If you’ve been making on-time payments on a credit card for several years, that card is likely boosting your score. So if you close it, you’ll take away from your “length of credit history” — and harm your score as a result.
Canceling a credit card could also hurt your credit score because it could impact your credit utilization ratio by decreasing the amount of credit available to you.
Let’s say you’ve been spending $3,000 of your $10,000 available credit, so your ratio is 30%. But when you cancel the card, your available credit decreases to say, $6,000.
Now your credit utilization ratio is 50%, which is a lot higher than the recommended amount. For these reasons, the answer to, “Does canceling a credit card hurt your credit score?” is oftentimes yes.
Our advice:
Avoid closing old credit cards if you don’t have to. If you’re trying to avoid an annual fee, see if you can downgrade to a no-fee version of the card instead of closing the account completely.
That way, you can keep your account history and available credit without having to worry about paying a fee for a card you don’t use.
That said, you might be closing the card to combat an overspending problem. If this is the case, it might be the right move to close your cards completely, so you don’t get into a hole of high-interest credit card debt.
5. Lacking a sufficient mix of credit
Your “credit mix” makes up 10% of your credit score. If you don’t have a diversity of credit types, you might not be able to build an excellent score just yet.
A mix of credit might include a revolving line of credit (e.g., a credit card) and an installment loan (e.g., a student loan or personal loan).
Our advice:
While a mix of credit could boost your score, there’s no sense in taking out a loan just to improve your score.
But if you naturally take out a few financial products over the years, this credit diversity could push your score closer to that perfect 850.
If you’re building credit from scratch, consider opening a secured credit card to start building your credit.
6. Opening too much credit at once
Even though “credit mix” plays a part in your score, opening too many lines of credit at once could actually hurt your credit score.
When you apply for a loan or credit card, the lender runs a hard credit inquiry on your account, which could cause your score to temporarily drop a few points.
If you apply for a bunch of products at once, your score could take a hit.
Our advice:
Avoid applying for lots of new financial products at the same time. That said, you usually have a window of about 30 days if you’re shopping for one particular product, such as a mortgage or a refinanced student loan.
If this describes you, try to keep your applications to the same 30-day window. And if you’re pursuing student loan refinancing, take advantage of online rate quotes that let you “pre-qualify” with no impact on your credit score.
7. Getting a reporting error on your credit report
Finally, a damaged credit score might simply be the result of a reporting mistake on your credit report. Errors happen, and you might have a red mark on your credit through no fault of your own.
Our advice:
Monitor your credit score through a free service like Credit Karma, and check out your full credit report by ordering a free report through AnnualCreditReport.com.
If something looks off, you can file a credit dispute to have the mistake removed. Once it’s gone, your credit score should bounce back.
Avoid these missteps that can damage a credit score
By knowing the things that can damage a credit score, you can avoid doing accidental damage to your score and instead, make moves to build it into the good or excellent range (e.g., 670-850).
Once you have a strong score, you’ll be in a much better position to qualify for low-rate refinanced student loans, take out a credit card with great perks, or make another move that will benefit your finances.
Want better rates? Here are the best banks to refinance student loans:
| Variable rates start at... | Fixed rates start at... | Repayment terms | Welcome bonus | Check your rates | |
|---|---|---|---|---|---|
 | 4.54% | 4.49% | 5 - 20 years | $200 | Visit LendKey |
 | 4.99% | 4.47% | 5 - 20 years | $200 | Visit Earnest |
 | 4.22% | 3.97% | 5, 7, 10, 15, and 20 years | $120 | Visit Laurel Road |
 | 4.53% | 4.40% | 5 - 20 years | $100 or $200, depending on the amount you refinance | Visit Credible |
 | 5.09% | 4.74% | 5, 7, 10, 15, and 20 years | $100 | Visit SoFi |
 | 4.53% | 4.83% | 5, 7, 10, 15, and 20 years | $100 | Visit ELFI |
