Three financial habits that can damage your credit score

Three financial habits that can damage your credit score

Image Credit: Casper1774Studio/istockphoto.

Some money missteps lead to an obvious fee, while others can shadow you for years. That is especially true when it comes to your credit score, the number from 300 to 850 that helps determine what you pay for a mortgage, car loan, or credit card. The main scoring factors are straightforward: payment history makes up 35% of a FICO score, amounts owed account for 30%, length of credit history counts for 15%, and new credit plus credit mix contribute 10% each. Together, the three mistakes below affect most of the formula.

Mistake #1: Missing bill payments

Payment history is the largest part of your score, and even occasional late payments can leave a lasting mark. A strong record takes time to build, but it can be harmed quickly. The most reliable fix is to set every account to autopay for at least the minimum amount, then handle the remaining balance yourself after reviewing the statement. If a payment does slip through, take care of it as soon as you notice, because the longer it stays past due, the more damage it can do.

Mistake #2: Running up credit card balances

Using too much of your available credit can also hurt your score. High balances increase your credit utilization, which lenders view as a sign of risk. Keeping balances lower generally helps your score and shows that you are managing credit responsibly.

Mistake #3: Staying away from credit altogether

Not using credit at all can make it harder to establish a credit history. Lenders need some track record to evaluate how you manage borrowing, so having no accounts can work against you when you need credit later. At the same time, avoid applying for several new accounts at once, since new credit is a separate part of the scoring formula and too many applications can hurt the history you are trying to build.

Check your reports for free

These issues usually appear on your credit reports before they show up in a score you do not like. You can review your reports at no cost from all three bureaus through AnnualCreditReport.com. Look for late payments you do not recognize, incorrect balances, or accounts you never opened.

The encouraging part is that many credit mistakes can be repaired. Late marks eventually age off, utilization improves as balances go down, and your history grows once you have accounts in place. Set up autopay, keep balances in check, and start building credit early — your score will reflect those habits over time.