Common Credit Mistakes Which Lower Your Score

The majority of businesses rely on the FICO credit score to evaluate applications. Keeping a high score is an important part of your financial health, which means avoiding common mistakes, which can dramatically reduce your rating. Here are the top three credit mistakes consumers make and the potential impact to your FICO credit score.

Maxing out your credit cards. Carrying elevated levels of debt month after month not only costs you more in interest payments, but it can significantly reduce your credit score. FICO places a 30% weight on the use of available credit. Often referred to as the utilization ratio, the percentage calculates available credit with current balances as a measure of financial health. A single maxed out credit card can lower a credit score between 10 and 45 points.  

Delinquent payments. Missing a payment by one day on a credit card can result in a late fee of up to $37. Missing a payment by 30 days or more can lower your credit score by 60 to 110 points because payment history accounts for 35% of the overall calculation. One of the highest score declines occurs from a missed payment, and the mistake typically impacts your credit score for seven years, declining in importance as time passes.  

Foreclosure or bankruptcy lowers your credit score between 85 and 240 points depending on your initial credit before filing. These actions are among the most serious offenses to your rating and impact future credit prospects for up to a decade.

FICO and Vantage scores, the two most widely used scoring companies, place the heaviest emphasis on payment history and use of revolving credit lines. Other factors the algorithms tabulate can include the number of applications you submit, years of credit history, and the mix between revolving and fixed accounts.