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What Habits Can Negatively Affect my Credit?

Small behaviors can have an impact on your credit score. We interviewed Bruce McClary, Vice President, Communications with the National Foundation for Credit Counseling, about what bad credit habits could impact your credit score negatively. According to McClary, a single late payment could reduce your credit score by as much as 300 points, depending on a variety of factors.

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So what are the things that can negatively affect your credit? And more importantly, how do you go about avoiding them to help ensure a better credit score?

Closing Too Many Lines of Credit at Once Is a Bad Idea

McClary notes that closing too many lines of credit at once can affect your credit negatively. “There are a lot of good reasons to close unused lines of credit,” he explains, such as a legitimately founded fear of credit fraud. The problem is when you have a lot of different lines of credit open that have no balance and you shut them all down at once.

McClary explains that, when you do that, you’re not just shortening the length of your credit history, which can have a negative impact. More importantly, you’re also probably raising your credit utilization ratio, another important factor to affect credit. “The byproduct of that is that it looks like you’re maxing out your lines of credit. Your balances then become much closer to your available limit of credit.”

How bad is it? “It can send your score into the basement,” According to McClary. If you have old accounts, leave them open unless you have a specific reason to close them.

Shopping Around Can Negatively Affect Your Credit Score

Of course you want to shop around for the best available rates. However, McClary explains why you ought to pursue shopping around with a bit of caution.

Looking for new credit products is fine. It’s applying for and, ultimately, accepting those new credit products that can affect credit scores negatively. “If you open up that many accounts over a short period of time, that creates a lot of inquiries,” he says. “It can look like you’re going on a bit of a credit binge.” That, in turn, can make you appear far more risky to your creditors.

McClary says he’s seen people get into trouble with this, especially around store charge accounts. Store-branded accounts tend to be far easier to get than other credit services, says McClary, in no small part due to high interest rates and also sometimes low credit limits. That can be fine if people use them responsibly. However, the issue comes up when people open too many accounts too quickly.

The bottom line? “It’s a good idea to wait 6-12 months before opening another account if you need one,” says McClary. That’s not just because of the negative effect too many accounts will have on your credit. It can also provide you with breathing room to ensure that you can responsibly manage the credit you already have.

Even One Missed Payment Can Be a Big Deal

Who cares about one late payment? “Your creditors care,” says McClary. “And you will, too, when you see the impact it has on your credit score.”

How much will one missed payment affect your credit score? McClary quickly notes that this is a very complicated question because credit scores are impacted by many factors; however, he’s willing to estimate a range: between 50 and 300 points off of your credit score.

Why such a wide range? The impact tends to be lower for people who have a lot of available credit sources with larger debt. However, McClary says that if you’ve put all your credit eggs into a single basket, you’re going to get a good whack on your credit report even for a single missed payment.

Know How to Help Protect Your Credit

First and foremost, McClary says that it’s important to pay your bill on time every month. “Timely payments are the number one factor for your credit score,” he says. He recommends automating payments where possible. When this is not possible, you should set up a reminder using a calendar app or something similar.

McClary also recommends you keep an eye on your credit report for errors, fraud or identity theft. These are areas where, through no fault of your own, you could experience a massive negative impact on your credit.

The main thing, according to McClary, is to be strategic about how you open new accounts. “Make sure when you open credit accounts, you plan ahead and consider how new credit might impact your budget and overall credit health.”

Establishing and maintaining good credit is a lifelong endeavor, and the sooner you can improve on your smaller habits, the larger the positive impact can be.

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Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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