Knowing the factors that hurt your credit score can put you on the path to a better credit rating. Low scores often result in credit rejections and higher interest rates on loans. In addition, some insurance companies increase premiums if you have a low credit score. You can educate yourself on factors that influence credit scoring, and you can take steps to maintain a good rating.
Bad Payment History
A bad payment history results if you make payments late or miss monthly payments to bill collectors and creditors. Because payment history accounts for 35 percent of you credit score, timely payments are a major aspect in maintaining a high credit rating.
Credit Card Balances
Smart credit habits include keeping debt under control. Credit utilization, which is the amount of debt you carry relative to your credit limit, is a factor in credit scoring. Therefore, maxed out credit cards and high account balances hurt your credit score. According to MSN Money, a credit utilization ratio of less than 30 percent is considered good. You can improve your credit score by keeping your debt and credit utilization ratio to a minimum.
Credit Applications
Applying for too many lines of credit can reduce your credit score and make it difficult for you to obtain new credit. Creditors check your credit when you apply for credit, and excessive credit inquiries by creditors can signal desperation from a lender or creditor's viewpoint.
Canceling Accounts
Canceling credit card accounts sometimes can hurt your credit score. The length of your credit history makes up 15 percent of your credit score. Older credit card accounts help build your credit score, and canceling or closing an older account can decrease your credit history and lower your score. Canceling a credit card also decreases the total amount of credit available to you, which, in turn, increases your credit utilization ratio. A high credit utilization ratio typically reduces your credit score. If you choose to cancel a credit card account, start with your newest account.
Co-signing
Co-signing for another person's loan helps the other person establish a credit history. However, if that person defaults or stop making payments, your credit score may suffer. Make sure you understand the co-signing agreement before signing your name, and only co-sign for a loan if you're prepared to make monthly payments if the primary account holder defaults.
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