When someone retrieves your credit report, they change your credit score—unless that someone is you or a lender who is rating your credit for promotional purposes.
This is just one of the many complex rules that go into the traditional FICO method for calculating your credit score. The formula can be a bit confusing to consumers, aside from the more obvious principles. For example, not having a credit card payment is bad, but keeping your card balance low compared to total available credit is good.
However, what many don’t know is that applying for a new credit card will only hurt a little – unless you do it multiple times over a 12-month period. And if five different potential mortgage lenders access your credit report within a 30-day period while you shop at the best interest rate, that only counts as one credit check or hard draw.
Got it all? That’s a lot, so we’ve compiled a list of the things that hurt your credit score, from the most damaging to the most manageable.
1. Bankruptcy
A bankruptcy announcement has the biggest impact on a credit score, which is worth between 130 and 240 points. Bankruptcy can stay on your credit report for up to 10 years. If this happens to you, remember that there is life—and credit—even after bankruptcy.
2. Home ownership went wrong
Foreclosure can result in a credit score drop of as much as 160 points and can remain on your credit report for up to seven years.
A homeowner can avoid foreclosure by transferring the property to a mortgage lender, which will result in a deed being issued in its place. The lender then sells the property to cover their losses. A deal in return doesn’t hit you as hard as a foreclosure, but it can take your score down to 125 points, on top of any damage from missed mortgage payments.
Another way to avoid foreclosure from a short sale. This is when the mortgage lender agrees to pay less than the original balance, when the “underwater” house cannot be sold for a price sufficient to pay off the remainder of the debt. Like a sales contract, a short sale can lower your score by as much as 125 points.
3. Debt settlement
Settling a debt to a creditor for an amount less than the original amount can lower your score by 45-125 points.
Moving your card debts to a consolidation loan may result in a slight drop in your score due to a complex investigation, but may help your overall score as your card balances are paid off along with the loan.
4. No card or credit payment
Payment history makes up 35 percent of your FICO score. According to FICO, a payment 30 days late can cost a person with a credit score of 780 or higher between 90 and 110 points. However, card issuers generally do not report late payments to credit bureaus until they are 60 days past due. A missed payment can remain on your credit report for up to seven years.
5. Charges and write-offs
A collection occurs when a creditor either sells your outstanding debt to a third party or hires a third party firm to collect the payment. “Write-off” refers to when a creditor removes an unpaid debt from their books, typically when it is overdue by 180 days. The newer the collection account, the more it will hurt your credit score. A collection can reduce a high credit score (700 or higher) by more than 100 points. Collections can remain on your credit report for up to seven years.
6. Make the most of your credit card
Credit usage is 30 percent of your FICO score. The smaller your balance in relation to your total available credit, the better your score will be. A card with the highest yield can lower your credit score by 10 to 45 points.
7. Complex queries
A hard request occurs when a lender pulls your credit report for review when applying for a loan or credit card. According to FICO, only requests received as a result of applying for a loan will affect your credit score. For most people, a complex request is worth 5 points or less and stays on your credit report for two years, but will only affect your credit score for one year.
8. Using too many credit cards
If you apply for multiple cards over the course of several months, points lost due to multiple complex requests add up. It can also give lenders the impression that you are in desperate need of a loan. FICO says consumers with six or more claims may be eight times more likely to file for bankruptcy.
9. Refinance your home, student, or car loan
According to FICO, refinancing a loan can have a small impact on your credit score if it appears on your credit report as the same loan with changes. In this case, your score may suffer a little from the new complex query.
10. Credit card cancellation
Closing a card account can lower your overall credit utilization rate, potentially lowering your credit score, and also reduce your overall credit age if you have a card for a long time.
11. Being an authorized user of someone’s “bad” account
When you add someone else’s credit card as an authorized user, you inherit that card’s payment history. This can boost your credit if the primary user has never missed a payment and is maintaining a low card balance. But the opposite can happen if the account is overdue, the balance is high, or it has any other negative points-killing elements.
12. Too little credit
If you want to maximize your credit score, your best bet is to have a combination of credit cards and installment loans. The credit mix is 10 percent of your FICO score.
To be eligible for a FICO score, you must have at least one credit card or loan account that has been opened within six months and reported to the credit bureaus within the past six months.
13. Credit report errors
Credit reporting errors can damage your ability to qualify for credit cards and loans. Consumers should check their credit reports regularly and dispute any errors with the credit bureau and the lender who provided the inaccurate information.
bottom line
As you can see, the biggest hits to your credit score have to do with the steps you need to take to get out of large debt. But even these fixes are meant to get you back on track. If you can avoid the big problems at the top of this list and keep an eye on the more manageable bottom half, you can focus on improving your creditworthiness. And good credit is where the opportunities begin.
Editorial disclaimer
The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.