Top Four Credit Score Killers


By Doug Matus

If you don’t have any large purchases planned, it’s easy to forget the importance of your credit score. Most people have only a hazy comprehension of how credit scores even work, and their impact on our daily lives can feel minimal. Indifference can do serious damage, however, and the effects of compromised credit can come back to haunt you.

The simplest way to understand the necessity of good credit is to consider interest: the better your credit, the less you’ll pay in interest for loans. In this sense, undermining your credit is like burning money. Many consumers don’t even realize how easily neglect can harm their credit scores.

To maintain high scores — and set yourself up for a better financial future — watch out for these four credit score killers.

1. High Balances

Taking your loan accounts to their limits and maxing out credit cards provides a surefire pathway to lower credit scores.

“Thirty percent of your credit score is derived from how much credit you use on an ongoing basis,” says Emily Couch, marketing manager with National Credit Advisors. This is often referred to as your credit utilization. “Never overspend or go over your credit limits, because this will reduce your score.”

Financial experts recommend that consumers maintain balances of no more than 30% to 35% of available credit. In other words, if your credit card has a $1000 limit, any balance higher than $300 should get fully paid each month.

2. Too Many Inquiries

A lesser known factor of credit scores comes from how often your credit gets pulled. Whenever lenders check your credit, the inquiries will appear on your credit report. Too many “hard inquiries” — those made through your own request, as when you apply for a loan or credit card — can lower your scores. Learn more about the difference between hard and soft credit inquiries.

Lenders worry about consumers who apply for multiple sources of credit within a limited time-frame. In-store credit cards are a common and unnecessary reason for consumers to accumulate too many queries. Many people sign up for these cards for one-time promotional savings, and fail to realize that the mere application carries consequences for their credit.

3. Unpaid Fines

Unpaid late fees at the library, the occasional parking ticket; we all get small fines that appear as nuisances in our budgets. The temptation to ignore these is strong, especially if we see a lack of consequences.

More and more municipal governments have outsourced the collection of overdue fees to professional agencies, however. An account that has gone to collections will obviously affect your credit, and collection agencies often have zero compunctions about taking matters even further.

“If an account winds up in collections, the agency may file a lawsuit to compel payment,” says Kevin Haney of A.S.K. Benefit Solutions. “If successful, the lawsuit triggers a public record filing, which also appears on your credit report.”

4. Late Payments

Among credit score killers, the chief culprit is a likely suspect: late payments. Most consumers fail to understand the sheer impact of late payments on your credit score, however, or the speed with which they can lower scores.

“The single biggest thing that affects credit scores is missing payments on loans or credit cards,” says Matthew Coan, a financial expert with “If you start missing payments, or are consistently late in making your payments, it will take your credit score down in a very short amount of time.”

Late payments have an outsized impact on credit scores. Among the various considerations used to calculate scores, payment history accounts for 35 percent — more than any other single factor. A single delinquency can lower scores, and payments that get missed altogether have an even greater effect.

To avoid this, along with late fees, always pay your bills on time. At the very least, strive to make payments within 30 days of the due date. Wait any longer, and the delinquency will appear on your credit report.

Though managing a credit score can feel like a hassle, the obverse will cause even more headaches. Damage to your credit score can occur through no effort whatsoever; rehabilitation, on the other hand, can take months, or even years of hard work. Save yourself the trouble: make the effort today to nurture good credit, and count your savings long into the future.

About the Author

Doug Matus is a freelance writer who frequently contributes to the Self Financial cblog.

Written on July 20, 2016

Self is a venture-backed startup that helps people build credit and savings.
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Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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