Sourced from: nomarmortgage.com

FICO credit scores are the most widely used scores by lenders and typically range from 300 to 850. They’re calculated from the information in your credit report — including whether you’ve paid accounts on time, how much you owe, how long you’ve had credit, what types of credit you have and how many new accounts you have. Although there are five main factors used to figure out your credit score, there are countless ways to screw it up.

Whether you want to increase your credit score or repair issues of the past, knowing what can trip you up can help ensure you maximize your potential credit score.  The truth is that even small things can have a profound effect on your score.

1. You Never Check Your Credit Report

It is super easy to forget to check your credit score or be too worried to do it. Some say that ignorance is bliss. That blissful ignorance will come to an end the day you want to buy your first home or car, or when you want to rent an apartment.

This is one of the biggest mistakes you can make while also being the easiest to avoid. Checking your credit score will let you know where you stand, alert you if there is fraud linked to your name and let you know if anything else needs to be remedied. 

Our partner, myFICO is offering 20% off the credit reports from Experian, Equifax and Transunion.  Click here to get your credit reports.

2. You Pay Your Bills Late

Your payment history has a big impact on your credit score. Your credit score indicates how likely you are to repay your debts, so any missed payments can hurt your score.

U.S. News & World Report estimated that a single late payment can lower a credit score by 100 points or more. However, borrowers might be able to mitigate the damage, assuming they act fast. While missing a payment by just a few days likely won’t put your scores at risk, paying bills 30 or more days late can have a serious effect on your credit.

Do whatever is necessary to avoid being late on payments. If you are forgetful, set up reminders on your phone or computer. If you spend too much, tighten your belt so you’ll have the cash to make your payment.

If you paid a bill late, contact your lender to get its policy on reporting late payments. Unfortunately, if the lender has already reported the late payment, you probably won’t be able to get it removed from your credit report. You’ll just have to make sure all future payments are made on time.

3. You Have Too Many Credit Cards

Keeping too many credit cards open at one time can be problematic, even if you pay each of them off monthly.   Even if you don’t use all your available credit, lenders might wonder what would happen if you did max out your cards.   We advise limiting the amount of available credit you have at any one time.  To fix or manage a credit utilization issue, consider closing one of your newer credit accounts to keep your utilization ratio low and your credit history long.

4. You Carry High Balances on Your Credit Cards

After payment history, the amount you owe is the second-most-important factor in your credit score, according to myFICO, the consumer division of FICO. Owing money doesn’t necessarily lower your score but using a high percentage of your available credit can.

Remember that a high credit utilization ratio can hurt your credit score and make lenders think you’re a high-risk borrower. Consumers with the best credit scores use 10% or less of their available credit, Kelly said.  If you’re carrying balances on credit cards that exceed 50% of the available credit, then you’re probably hurting your credit score.  Try to get your total credit utilization under 50% first.  This is one of the fastest ways to increase your credit score.

5. You Don’t Have Any Credit Cards

Lenders like to see a long history of responsible credit use, and if you don’t have a card, you might not have much information to show. Although it seems counterintuitive, not having any credit cards can actually hurt your credit score as much as having too many.

While its great if you’ve paid off your mortgage or other loans and buy things only with cash now. But if you think you’ll be applying for credit at any point in the future, you need to continue using credit to show recent activity on your credit report.

We recommend having credit card or maybe two and either carry zero balance or every once in a while purchase using the card and pay it off within 30 days.  Just don’t abuse the cards and change your great financial habits.  Click here for potential credit card options that might suit your needs.

6. You Close Old or Inactive Credit Cards

Although it’s smart to limit the number of credit cards you have at any given time, closing old or inactive cards can come back to haunt your credit score.  The length of your credit history affects 15% of your score.  This is why it’s important not to close credit card accounts that you have had for years.

7. You Ask for a Higher Credit Limit

Even though your credit card issuer checked your credit when you applied for your card, it will likely check it again if you ask for a higher credit limit. This could be reported as a credit inquiry, which could affect your score.  If possible, try to spend well within your current credit limit. That way, you won’t put your credit at risk.

This doesn’t mean you shouldn’t ask for a higher limit — especially if you’re responsible with credit and don’t plan to charge your card to the max. But you should think twice about doing so before applying for a mortgage or other loan.

8. You Consolidate Debt onto One Card

If you owe money on several credit cards, you might be tempted to consolidate debt by transferring all the balances to one new card. But that can be a mistake if it increases your debt-to-credit ratio.  To keep your score from dropping, make sure the debt you consolidate doesn’t exceed 50% of the available credit on the new card.

9. You Pay Off All Your Cards at Once

Paying down high balances can help improve your credit score. But if you pay down all your balances at once, your score could take a hit.  This one is a bit tricky, but you don’t want to show no activity on any card.  FICO wants to see recent activity on revolving accounts.

Don’t shove zero balance cards in a drawer and never use them again.  Try to rotate spending on the cards you use to keep them all active and pays the balances to avoid racking up interest.

10. You Use the Wrong Credit Card

You have to be careful about which card you use when making big purchases. For example, if you buy a $1,000 television using a retailer’s card with a $1,000 limit, you’ve just maxed out your card.  If you put that purchase on another card with a $30,000 limit and low utilization, it wouldn’t negatively impact your score.

By using all the available credit on one card — especially if it’s your only card — your credit score could drop 50 points or more.  So make sure that if you have a choice of cards that you use one that won’t be maxed out. And don’t apply for a retailer’s card just to get a discount if the limit on that card will be close to the amount you’re charging.