In my last post, I talked about five of the top ten things that will hurt your credit score. Here are the final five:
Things That Will Hurt Your Credit Score #6: Not Pulling Your Credit Report Regularly.
A lot of people worry that if they pull their credit report, they will hurt their credit score. While it is true that 10 percent of your score is based on the number of inquiries by lenders into your credit report, pulling your own credit report does not hurt your score. You can pull your own credit report each and every day, and your score will not budge.
In fact, failing to pull your credit report could hurt your score. How will you know if someone opens an account in your name? How will you know if your account limits are being inaccurately reported?
At a minimum, pull your credit report from www.720FICOScore.com at least every six months.
Things That Will Hurt Your Credit Score #7: Closing an account.
15 percent of your score is based on the age of your credit accounts. The older your accounts, the better your score.
For instance, let’s say you have five accounts:
- Account #1 is five years old,
- Account #2 is twelve years old,
- Account #3 is seven years old,
- Account #4 is eight years old, and
- Account #5 is nine years old.
The average age of all of your accounts is 8.2 years. Now let’s imagine that you close account #2, which is twelve years old. Now the average age of your accounts is only 7.25 years.
And this is just one reason closing an account can hurt your score. If you close an account, the account will show a $0 limit. So if you have a balance on this account, your balance-to-limit ratio will be sky-high.
Don’t forget, too, that 10 percent of your score is based on the type of credit you have. The credit-scoring bureaus like credit reports with a healthy mix of credit, and they prefer that you have at least three credit cards. If you close an account, you might have too few credit cards, or you might not have a healthy mix, both of which will hurt your score.
Things That Will Hurt Your Credit Score #8: Collections.
Collection accounts are particularly harmful because they are always preceded by late payments. A collection account should stay on your credit report for seven years from the date of activity that sent the account into collections. For instance, if you fail to pay your credit card bill on March 1, 2010, this is the traditional course of action:
1. A 30-day late payment will be added to your account on approximately April 1.
2. A 60-day late payment will be added to your account on approximately May 1.
3. A 90-day late payment will be added to your account on approximately June 1.
4. A 120-day late payment will be added to your account on approximately July 1, and the account will be sent to collection.
5. Assuming you make no further payments on the account, the collection will remain on your credit report for seven years after the original late payment. In other words, it will fall off your credit report on approximately March 1, 2017.
Things That Will Hurt Your Credit Score #9: Paying a bill in collections.
Now let’s add a payment into the mix. Let’s assume all of the above, but that in March 2012, you make a partial payment on the collection account. Guess what? This renews the date of last activity, meaning that the collection account will stay on your report until March 2019!
It’s crazy but true. Paying a collection account will often hurt your credit score.
In 7 Steps to a 720 Credit Score, I describe this process in detail, and I provide you with all the forms and worksheets necessary to get that collection account off your credit report!
Things That Will Hurt Your Credit Score #10: Late payments.
You probably already knew that late payments will hurt your credit score. Here’s the good news: The credit-reporting bureaus pay more attention to recent behavior than past behavior. If you follow the steps for building your credit score, the damage will be all but erased in as little as two years!