Improving and maintaining a credit score in the U.S. can seem like a challenging task, but there are several common mistakes that people often make, sometimes without even realizing it. Here are the biggest errors to avoid if you want to protect your credit score and maintain a healthy financial profile:
1. Making late bill payments
This is the most common and damaging mistake. Payment history accounts for 35% of your credit score, making it the most important factor. Each time you miss a payment, especially on credit cards or loans, it negatively impacts your score. Even a payment that is only a few days late can result in penalties and be reported to credit bureaus, potentially dropping your score by a significant number of points.
2. Using too much of your credit limit
Many people don’t realize that using more than 30% of your available credit on credit cards can hurt your score. This is known as the “credit utilization ratio.” When lenders see that you’re using a large portion of your available credit, they view you as a higher risk, which can cause your score to drop.
3. Not regularly checking your credit report
Another common mistake is not checking your credit report regularly. Many consumers are unaware that errors or incorrect information can appear on their reports, such as accounts that don’t belong to them or paid-off debts that still show as pending. These mistakes can lower your score. In the U.S., you can access your credit report for free once a year through services like AnnualCreditReport.com. Fixing errors can quickly boost your score.
4. Closing old credit accounts
Some people think that closing an old credit account they no longer use is responsible behavior. However, this can harm your score. The length of your credit history accounts for 15% of your credit score, and the longer an account has been open, the better it is for your score. By closing old accounts, you shorten your overall credit history, which can decrease your score.
5. Applying for too much credit at once
Each time you apply for a new credit card or loan, a “hard inquiry” is made on your credit report, which can temporarily lower your score. Applying for multiple credit accounts in a short period of time signals to lenders that you may be in financial trouble or urgently need credit. This can negatively impact your score, as it represents 10% of your credit score.
6. Ignoring small debts
Often, small debts like phone bills, utilities, or even parking tickets are forgotten or neglected. However, if these debts go unpaid, they can be sent to collection agencies, which will severely hurt your credit score. Even small debts, once reported, can have a disproportionate impact on your score.
7. Not diversifying credit types
The credit mix you use accounts for 10% of your credit score. Relying exclusively on one type of credit (such as only credit cards) can limit your score. Having a healthy mix of different types of credit, like car loans, mortgages, and credit cards, can improve your score. It shows lenders that you can manage different financial responsibilities.
8. Not building a credit history
A common mistake, especially among younger individuals, is not starting to build credit early. Having no credit history can be as detrimental as having bad credit, as lenders have no way to assess your financial risk. The recommendation is to start with a low-limit credit card and make regular payments, even for small purchases, to establish a positive history.
9. Relying on “quick fix” credit repair services
There are many services that promise to repair your credit quickly by removing negative information for a fee. While some of these companies are legitimate, many are not. The mistake here is believing there is a miracle solution. Credit scores are built on consistent financial responsibility over time, and repairing a score properly takes effort and patience. The best way to improve your score is by adopting good financial habits.