Credit Score Sabotage: 5 Common Ways You Can Undermine Yourself


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By Becky Frost

Last month your credit score was 735. You checked it again this morning, and it's 20 points lower. What's up?

It could be any combination of factors. There are different credit scoring models used, and they can weigh factors differently to determine your score. But these are five of the most common reasons you could experience a dip in your score:

Late credit card or loan payment: Your payment history has a significant impact on your credit score, accounting for about 31 percent of your total rating. If your make a credit card or loan payment more than 30 past its due date, this information will likely show up on your credit report, which could cause your credit score to drop. Anything 30 days or more late matters, and 60 or 90 days late matters even more.

Larger than normal credit purchases: Another key factor in calculating your credit score is your credit utilization ratio. In simpler terms: How much of your credit are you using in relation to your total available credit? In general, the lower this ratio, the better your credit score will be. If you've been using more of your available credit lately, you may see a drop in your credit score. If a creditor lowers your credit limit, it may also change your credit utilization ratio and impact your score.

An unpaid account goes to collection: In order to maintain a good credit score, you need to pay all your accounts -- not just credit cards and loans -- in a timely manner. Late payments to medical facilities, student loans and utilities can be sent to a collection agency, which could in turn show up in your credit report.

You applied for a credit card: When you apply for credit, you give lenders the OK to ask, or "inquire," for a copy of your credit report. This is known as a hard inquiry on your credit. When the information on your credit report indicates that you've applied for multiple new credit lines over a short period of time, your credit score may be lowered as a result.

You closed a credit card account: Canceling a credit card could be a good idea if it eliminates the temptation to charge more than you should. But by closing an old or unused account, you are wiping away some of your available credit, thus increasing your credit utilization ratio. As a result, your credit score may drop. Also, the length of time you've had accounts open shows that you have a solid payment history, so that could be another reason to keep that card you've had awhile open (as long as you're paying it on time).

More about credit and homebuying from Zillow:
Key Factors in Securing a Mortgage
How Much Home Can You Afford?
What Really Influences Your Credit Score?

Written by Becky Frost, senior manager of consumereducation for Experian Consumer Services. Experian Consumer Services offers credit monitoring products like freecreditscore.com™, which has resources and calculators that help you understand how credit can impact your life. Credit is an important component when buying, renting or refinancing your home.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

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