What Can Drop Your Credit Score?

You can spend years building a high credit score, but it only takes a mistake or two to trash it. Some actions, such as letting a credit card go into collections, have a larger impact on your score than other actions, but many things can cause your credit score to drop. The Fair Isaac Corp. considers several items, such as debt, payments and open accounts, when factoring your score. Making a mistake in any of these areas will cost you.

Misguided Payment History

Bankrate reports that as of 2011, your payment history makes up 35 percent of your credit score. Every time you run late on your credit card payment, it will lower your credit score. If you miss payments entirely for several months, the lender will note your account as a charge-off and close it. A charge-off will cost you a drop in your credit score. To make matters worse, the lender will likely sell your account to a collection agency. Having a collection file on your credit report also drags down your credit score.

Carrying a Balance

Lenders put a lot of stock into your debt to credit ratio, as having a low balance on your credit cards shows that you can handle debt. The amount of debt you have makes up 30 percent of your credit score, according to Bankrate. If you keep a high balance on your credit cards, you will have a lower credit score. Maxing out your credit cards entirely will cause an even lower credit score. CNNMoney recommends keeping your balances at or below 35 percent of your available credit limit.

Overzealous Applying

Opening and managing a credit card will help you build a credit history, but applying for too many credit cards in a short timeframe will hurt you. Most lenders see submitting multiple applications as a sign that you have a financial burden causing you to look for more credit lines. A hefty financial burden could mean you won't repay your debts, which makes you a higher risk candidate. Bankrate reports that a credit inquiry stays on your credit history for two years, and a single inquiry could cost you up to five points off your score.

Not Staying Active

The length of your credit history factors into your credit score. The longer you keep a credit card open, the longer your credit history will get. If you close older credit card accounts, it will shorten your credit history and lower your score. You should always try to keep your oldest accounts open and good standing to maintain your credit history. You may need to use the card periodically, as the lender can close the account for inactivity.