The one number with the ability to determine your future—for better or worse—is your credit score. This score, also known as a FICO score, determines your creditworthiness and the likelihood that you’ll pay your bills. A bad score can do more than keep you from getting a loan; it can also make you ineligible for rental housing or an amazing job. So what lowers your credit score? There are several culprits to steer clear of.
What lowers your credit score? Here are 5 things:
5.) Identity Theft
Identity theft can be a silent credit killer, especially if it goes undetected for a while.
A crafty thief may use your personal information to get new credit cards in your name on the sly and charge thousands of dollars to them. A craftier thief may receive expensive medical care under your name.
Based on some of FICO’s key scoring components, what lowers your credit score with respect to identity theft is the payment history.
If a thief opens a credit card or takes out a loan using your personal information, chances are he’s never going to pay the balance. Credit card issuers typically report late payments to credit bureaus once they’re 60 days past due. Payment history accounts for 35 percent of your credit score, and a single missed payment can cause it to drop by as many as 110 points.
It takes time to repair credit score damage from fraud, even after you’ve reported it to the card issuers and closed the cards.
The Federal Trade Commission says that you can protect your identity by not responding to soliciting phone calls or phishing emails. In addition, maintain the security programs on your computer and shred documents that contain sensitive information about you.
4.) Ignoring Government Fines
Little fines like those from the library for a late book return or parking tickets have the potential to ding your credit score, according to Kiplinger. This is because the fines have the potential to get sent to collections if you don’t pay them in time.
Overlooking government fines like this are part of what lowers your credit score because a collection is considered to be negative and is likely to deduct 45 to 125 points from your credit score.
Also, the higher your score, the more the collection reduces your score.
It is very easy to ignore parking and library tickets because the fees seem to be minor. However, do not ignore them, as the next notice you get could inform you that the bill is being sent to a collection agency.
A collection account is considered debt that is severely past due. It indicates that the creditor gave up trying to get payment from you and was forced to hire someone else to collect the funds from you.
To save your credit score, follow all traffic and parking laws and return your books to the library on time. If you make a mistake and receive a fine, don’t ignore it.
3.) Store Credit Cards
A store credit card can be part of what builds your credit score—or contribute to what lowers your credit score.
Some store credit cards are tempting because they offer perks, such as discounts whenever you shop or free shipping when you order online.
The perks are nonexistent, however, when you consider the card’s interest rate and fees. A September 2011 Kiplinger article shares that store credit cards that allow delayed payments are the worst.
As you let your debt sit, the interest rate may accrue, lowering your credit score and bringing you closer to your credit limit. Instead, save your money and pay for items with cash.
Also, according to credit experts, opening or applying for a new store card could cause a hard inquiry on your credit. A hard inquiry can stay on your credit report for about two years.
However, inquiries for a new credit account only make up 10 percent of your FICO score, and a single hard inquiry is likely to reduce your score by less than five points.
2.) Late Payments
Whenever you make a late payment on a bill, you get a red mark against your credit score.
According to Investopedia, utility bills can do a lot of damage to your credit score if you’re bad about making timely payments because the companies are quick to report offending customers to credit bureaus.
However, a late payment does not affect your credit until it’s 30 days late.
A 30-day late payment could cause as much as a 90- to 110-point drop on a FICO score of 780 for a consumer who has never missed a payment on any credit account.
The late payment could remain on your credit report for up to seven years.
Have a habit of paying late? Your account could be charged off or sent to collections, which could further dent your credit score.
To stay on track, pay your bills as they come or set up an automatic bill-pay service through your online banking account.
The level of your debt is 30 percent of your credit score, so it is safe to say that debts are a big part of what lowers your credit score.
If you let it get out of control, debt is like a hole that only gets deeper. While some debts—such as student loans or mortgages—are OK, it’s better to avoid them if you can.
The credit reporting agencies know about every debt that you have, even the smallest ones. The more debt that you accrue, the lower your credit score.
How you handle your debt can affect your credit score. If you pay up your debts early, it helps to raise your credit score. Consolidating your bills may be a first step toward this.
Meanwhile, if your debts are too much to handle, choosing debt settlement or bankruptcy to deal with your debt will result in credit score damage that takes several months, or even years, to recover from.
To avoid debt, stop using your credit cards and pay cash for all of your purchases.
Were these tips helpful? In your experience, what lowers your credit score?