Despite using your credit cards carefully and making all of your payments on time, your credit score still isn’t as good as you’d like it to be. As a young adult, that’s a common problem.
The average credit score for individuals between the ages of 18 and 24 was 679 in 2021. That score is in the “good” range, but it’s a long way from very good or excellent credit — the scores required for the best interest rates and terms.
What hurts your credit score? Some common issues could be dragging your score down.
7 Little-Known Things That Hurt Your Credit Score
Your credit score is determined by several factors.
- Payment history
- Credit utilization
- Length of credit history
- Credit mix
- New credit
How can you mess up your credit score? You can damage your credit in the following ways:
1. You Don’t Have a Credit Card
People wary of debt may rely on cash or debit to pay for all of their transactions. But going without credit cards or loans can actually damage your credit.
Traditional credit scoring models calculate your score based on how you handle credit, such as credit cards, student loans, and mortgages. If you don’t use credit, there is no data for the credit bureaus to use, so you may have poor credit or no credit score at all.
Instead: Open a credit card account and use it to pay for routine expenses like gas or utilities. Pay off the balance in full every month and, over time, the card will help you establish good credit.
2. You Carry a Balance on Your Cards
When you use your credit card, the issuer will determine your minimum payment using your existing balance. The payment is often just 2% to 3% of the card’s statement balance.
Although paying the minimum will keep your account in good standing, carrying a balance from one statement period to the next can damage your credit.
Credit utilization — which accounts for 30% of your FICO credit score — is how much of your available credit you use. By carrying a balance, you increase your credit utilization, and higher credit utilization can damage your credit.
Instead: Pay off your statement balances in full each month, and use credit sparingly. Creditors like to see credit utilization under 30% of available credit.
3. You Closed an Old Credit Card
Although you may think closing old cards is a good idea to prevent unnecessary spending, it could hurt your credit.
Creditors look for borrowers with years of experience responsibly handling credit. The length of your credit history makes up 15% of your credit score.
If you cancel your oldest credit cards, you will lose years of your credit history — causing your score to drop.
Instead: Rather than closing your cards, keep them open but only use them for emergencies. Or, use the cards every few months to pay a bill, such as your cell phone or cable bill, and pay it off right away. With this strategy, your accounts stay open, but you don’t add to your debt.
4. You Cosigned a Loan
When a friend or relative asks you to cosign a loan for them, it can be difficult to say no. But co-signing a loan — even if it’s for someone you love — is risky.
The account will show up on your credit report, so the loan can affect your credit and eligibility for other forms of credit. And if the primary borrower misses payments, those late payments can damage your credit. Worse, you’ll be responsible for making payments toward the loan.
Instead: If possible, avoid cosigning loans. If you must cosign a loan, make sure you can comfortably afford the payments if the primary borrower falls behind.
5. You Have Unpaid Parking Tickets
While getting a parking ticket doesn’t affect your credit right away, it can over time. If you don’t pay the ticket by the due date, the state or county could send the account to collections. Negative reports, such as accounts in collections, can significantly reduce your score. Not only does an account in collections affect your credit, but you may also have to pay late fees and collection costs.
Instead: Pay any parking tickets right away to avoid collections.
6. You’ve Applied for Several Forms of Credit
Companies make it easy; you can apply for the latest cash-back rewards credit card or personal loans online within a few minutes. But beware: if the company performs a hard credit check, it could cause your credit score to drop by several points. If you apply for multiple credit cards or loans, you could lower your score by a substantial amount.
Instead: Only apply for new credit when you really need it. Before submitting an application, utilize lenders that offer rate check tools with soft credit pulls to check your rates and shop around.
7. Your Utility Bill Payment Is Past Due
Whether you didn’t realize your electric bill was due or your water bill is far more expensive than usual, it can be easy to miss a utility payment. However, missed payments are a big mistake. Your payment history determines 35% of your credit score. A single late payment can cause your score to plummet.
Instead: Enroll in automatic payments for all of your recurring bills, so you never miss a payment. For other bills, create reminders for yourself with an app or a paper planner.
Improving Your Credit
Now that you know some of the common things that hurt your credit score, you can take some steps to manage your credit and improve your credit score:
- Review Your Credit Reports: Many credit reports have errors, either from a mistake inputting information or from a thief using your personal information to apply for loans or credit cards. Review your credit reports — you can do so for free at AnnualCreditReport.com — regularly to catch those issues and dispute them.
- Automate Your Payments: Signing up for automatic payments and setting calendar reminders can ensure you never miss a payment again.
- Pay Down Balances: If you have outstanding credit card debt, try to pay down the balance as quickly as possible to improve your credit utilization.
- Limit Credit Inquiries: Only apply for new forms of credit when it’s essential. For example, only submit applications for mortgages when you’re truly ready to proceed with buying a home. When you do apply, try to limit your inquiries to a certain time period. Generally, inquiries for the same time of credit within a two-week period are treated as a single inquiry rather than several, minimizing the impact on your score.
Taking these steps can prevent negative effects on your credit score and give you the best chance of qualifying for low-interest rates.
