What Lowers a Credit Score? The Complete Guide

You may not realize it, but credit scores are incredibly important. It plays a major role in our lives and can affect our eligibility to get approved for important purchases like homes, cars, and credit cards.

While there are bad-credit loans out there available to people with low credit scores, they often come with higher interest rates and unfavorable terms. The higher your interest rate is, the more money you’ll pay on the loan in addition to the principal amount.

The question is, what lowers a credit score? What things can you avoid to make sure you have a good credit rating?

We’re here to give you some answers. Keep reading for an extensive guide on what can lower your credit score.

Limited Credit History

One of the most innocent things that hurt your credit rating is not having enough credit history. Yes, it can be a bad thing not to borrow money.

While not having debt or using credit cards isn’t necessarily bad for you financially, it doesn’t help you build credibility with lenders. If you don’t have a credit history, the credit agencies can’t gauge your ability to pay bills on time.

To build credit, you must show that you can responsibly borrow money.

Making Late Payments

Making late payments on your bills, debts, and other financial responsibilities are terrible for your credit score. Late payments to your lenders, service providers, and credit card companies are recorded with the credit bureaus. It shows that you can’t make reliable payments on time, which suggests financial strain and irresponsibility.

Letting Bills Go to Collections

What lowers a credit score worse than late payments? Letting your loan default, so it’s sent to debt collectors.

If you fail to make payments for a few months in a row, your lender will send your payments to collections. This is one of the major contributing factors to bad credit scores. It shows that you have a tendency to stop making payments to companies you owe money to.

Maxing Out Credit Cards

Having credit cards is recommended for building credit. However, you must use them responsibly.

For example, if you can pay your credit card down to zero each month, it shows that you’re financially responsible. It also helps prevent paying hundreds or thousands of dollars over time into interest.

Alternatively, if you max out a credit card or multiple credit cards and only make minimum payments on them, it can negatively affect your credit score.

Making Multiple Hard Credit Inquiries

Learning what lowers a credit score is essential for building a high-ranking credit profile. Did you know that making hard inquiries for credit can hurt your overall rating? This can be especially damaging if you get denied for one loan or credit card and apply for several others.

However, soft inquiries, like getting a pre-approval, does not hurt your score. Learn what your credit rating is, and then research what it needs to be for getting certain loans or credit cards to avoid taking a hit on hard inquiries.

Canceling Credit Cards

Though credit cards may have been the bane of your financial history in the past, wait a moment before canceling them entirely. Though you may feel it’s for the best to avoid charging them up, canceling your credit cards can have a negative impact on your credit score.

Instead, teach yourself how to use them wisely. Having an open credit card with a low balance shows that you have credit available to your name, which will reflect positively with the credit bureaus.

Foreclosing on a Home

What lowers a credit score in terms of mortgages? Obviously, making late payments to your mortgage provider can lower your credit rating.

However, if you’re more than three months behind, the home can go into foreclosure. If the bank forecloses on the home, it can evict you and repossess the home.

This can absolutely tank your credit score, dropping it as much as 160 points. This can make it terribly difficult to get approved for a mortgage in the future. It may even affect your ability to get approved for renting an apartment.

Filing Bankruptcy

Sometimes in life, one bad thing happens after another. Some people are forced to file bankruptcy in order to prevent more financial damage. If you’re in this position, filing bankruptcy may be an absolute necessity.

However, it will drastically affect your credit score. Depending on the terms and circumstances of your bankruptcy, it can drop your credit score by more than 200 points.

Co-signing for an Irresponsible Borrower

Sadly, it’s not uncommon to be punished for trying to do nice things. For example, if you co-sign for an auto loan for a friend or relative with poor credit, their payments going forward on the loan will affect your credit score.

If they make late payments or let the loan go to collections, you’re going to be held responsible. Not only will the lender demand payments from you, but the negligence will also be reflected in your credit report.

Not Disputing Credit

You might be surprised to learn what lowers a credit score may not be your fault. Sometimes, lenders, service providers, and other businesses make mistakes when reporting payment histories.

Clerical errors can lead to misunderstandings with your lenders. Read through all of your credit reports from each of the three credit bureaus to search for inaccuracies. If you find any, you can dispute the errors with the company and the credit bureau.

Now That You Know What Lowers a Credit Score, What Are You Going to Do About It?

As you can see, there’s a lot that goes into the building (or tearing down) of a credit score. Fortunately, there are easy steps you can take to make sure you keep your credit report climbing. And if you do have a poor credit score, now you now know what lowers a credit score.

Do what you can to improve your credit by being a more responsible borrower. And if you need help building your score up, contact us today. We are a top-rated credit repair agency with no monthly fees.